Central Bank deputy warns Irish institutions and regulators that payment systems lag in preparation for future innovations and changing trends…
The Central Bank of Ireland (CBI) has stated that government authorities, banks and businesses need to cooperate to embrace the new National Payments Strategy.
CBI Deputy Governor Madouros Vasileios addressed the Banking and Payments Federation Ireland (BPFI) convention on payments, in which he stated that Ireland lags “behind peers” on payments infrastructure and innovations.
Last year, the government and CBI launched a new National Payments Strategy (NPS) to address “gaps in payments,” with an immediate priority to modernise Ireland’s payment infrastructure.
In his address, Vasileios stated that “innovation in payments remained untapped from the perspective of the domestic economy.” He emphasised that “Ireland has been lagging behind some of our peers in terms of the payments offerings available to domestic households and businesses.
“The Government’s National Payments Strategy (NPS), published last October, has set the foundations to address that. And our collective near-term focus now needs to be on delivery, to realise the intended outcomes outlined in the NPS.”
Failure has led to fragmentation
Vasileios underlined that central banks and regulators cannot afford to stand still as payments technology evolves rapidly. The modern monetary system relies on a balance between public money, which are liabilities of the central bank, and private money, which are commercial bank deposits.
The payments infrastructure that connects these two forms of money is underpinned by a partnership between the public and private sectors.
As such central banks and regulators play a crucial role in maintaining trust by issuing public money as the safest and most liquid asset, operating core payment infrastructures, regulating and supervising financial institutions, and overseeing privately-operated payment systems.
A failure to modernise payments infrastructure would lead to fragmentation, resulting in higher costs and inefficiency for businesses and consumers.
Reliability needed for future disruptions
If payment systems become unreliable or vulnerable to fraud, public trust in the financial system could weaken. More critically, if private money (such as stablecoins) were to replace central bank reserves as the primary settlement asset, it could undermine the stability of the broader financial system. Vasileios stressed that central banks need to actively engage with technological advances to prevent these risks and maximise the benefits of innovation.
One of the key areas of innovation that the CBI is exploring is distributed ledger technology (DLT). This technology allows for the creation of a shared, real-time ledger that can be updated simultaneously by all parties involved in a financial transaction. This could significantly reduce friction and costs in financial settlements. The Eurosystem (which includes the European Central Bank and national central banks) has already conducted successful tests of DLT for settlement in central bank money. Based on the success of these tests, the Eurosystem is pursuing a two-track approach. In the short term, it aims to develop a platform to enable settlement of DLT-based transactions in central bank money through an interoperability link with existing TARGET Services. In the long term, the goal is to create a more integrated solution for settling DLT-based transactions directly in central bank money.
This innovation could reduce the reliance on intermediaries, lower costs, and increase the speed and security of financial transactions.
Vasileios also highlighted the potential of tokenised deposits, where a standard deposit balance is represented on a shared ledger. While the focus so far has been on wholesale financial transactions, the technology could eventually be extended to retail payments.
Digital Euro on the Horizon
Ireland needs to begin preparing for the introduction of a ‘Digital Euro’, as next evolution on centralised payments infrastructure.
The innovation will offer a seamless and secure form of digital money that could be used across the euro area, binding regulatory and compliance frictions between Europe’s national payment systems/networks.
The CBI embraces the Digital Euro, Ireland could strengthen its competitive position in the European payments ecosystem while ensuring that consumers and businesses benefit from more efficient and cost-effective payment options.
Vasileios concluded by stressing the importance of aligning technological progress with financial stability and public trust: “Digitalisation is one of the most powerful ‘mega-trends’ shaping our society and economy. And payments are the lifeblood of the economy. So innovation in payments – done well and safely – can unlock broader economic benefits.
It can improve efficiency, enhance competition, and reduce costs for businesses and households.”
By responding strategically to technological changes and working closely with industry stakeholders, the CBI aims to position Ireland at the forefront of payments innovation while maintaining the integrity and resilience of the financial system.
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