Opening Remarks BOT-OMFIF High Level Seminar Shaping the Future of Central Banks

Excellencies, Central bank governors and former governors, Chairman of OMFIF (David Marsh) Distinguished speakers and guests, Ladies and gentlemen,
Good morning and welcome to the Bank of Thailand-OMFIF High-Level Seminar on Shaping the Future of Central Banks. First of all, I am very honored to welcome many prominent guests and speakers to our event. Here with us today include many current and former central bank governors from different parts of the globe, esteemed diplomats, leading academics, top policymakers as well as leaders of the Thai financial industry. The wisdoms we can learn from one another throughout our sessions will help shape the agenda for the future of central banking and that of the Bank of Thailand for years to come. Thank you for being here with us.
I would also like to thank David Marsh, Chairman and Co-Founder of OMFIF, and his team for the work they put together in helping organize this event. This event is the last of the one-year series of international conferences hosted by the Bank of Thailand to celebrate our 75th anniversary.
Looking back over our 75-year history, our journey teaches us many important lessons. In my view, one of the most important lessons is how to maintain central bank’s policy autonomy amidst changing economic, social, and political landscapes. This question was most crucial at the inception of the Bank of Thailand, is still very relevant today, and will continue to be very relevant going forward.
Beginning with our inception during the Second World War, the establishment of the Bank of Thailand was an attempt by the Thai authorities to retain autonomy on banknote printing as well as on domestic economic policy amidst mounting pressure from foreign force operating in the region. While the idea of establishing a central bank was a subject of much debate decades prior,
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efforts had never been materialized and often met with challenges from domestic and foreign influences, including interest of foreign banks operating in the country. However, it was under the threat of the foreign force during the Second World War that the idea of having our own central bank grew in acceptance. The Bank of Thailand was quickly established to retain the Thai authorities’ ability to control supply of banknotes; control inflation; and limit foreign influence on our economic policy and the local economy. In fact, it only took two months for drafting and enactment of the Bank of Thailand Act of 1942.
Over the following seven decades, the Bank of Thailand has played crucial roles in maintaining economic stability, taking part in development efforts, and contributing to the modernization of the Thai economy and improvement of the standard of living of the Thai people. These included restoring economic activities, taming inflation, and reestablishing international partnerships during the postwar period. The Bank of Thailand also took lead in developing financial infrastructures, including establishing the very first domestic banknote printing facility, introducing modern banking regulations, setting up modern payment systems, and taking part in setting up the Thai capital market as well as the Securities and Exchange Commission. Throughout our 75-year journey, the Bank of Thailand has served as the key pillar of development for the Thai economy.
Ladies and gentlemen,
The 1997 Asian Financial Crisis was an important turning point for the Bank of Thailand. Burst of real estate bubble, massive corporate foreign debts, depleted international reserves, and sharp devaluation of the Thai Baht were the painful experiences remembered from the 1997 crisis. The fallout was devastating and left millions financially insecure. But the crisis also presented us with opportunities for significant reforms. Most notable was the amendment of the Bank of Thailand Act that solidified our operational independence and strengthen our governance and accountability. It was this strengthened autonomy that has enabled the Bank of Thailand to respond effectively to changes, take long-term approach in our conduct of policies, carry out prudent actions that might not be politically popular, and build stability for the Thai economy the past 20 years. As a result, the Thai economy has built good buffers and resilience to endure various shocks – externally from the Global Financial Crisis of 2008 to the current episode of emerging market turbulence and domestically from different episodes of severe natural disaster and political difficulties.
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Looking back on our 75-year journey, while our policy autonomy has been and will remain one of the most important attributes of central banking, the landscapes in which we exercise our policy autonomy have evolved over time. It is important then that central banks look over the long horizon to ensure that we can maintain our policy autonomy under changing environment. In an extremely complex world we now live in, transformative forces may shape the course of central banking and challenge central bank’s autonomy. The seminar today will explore three important challenges in particular.
We will start by exploring the impacts from globalized financial system and global financial conditions on small open economies. Growing linkages of international capital markets have resulted in the spillover of global financial conditions into domestic markets, thus compromising central banks’ control of domestic liquidity. In the immediate horizon, normalization of monetary policy in advanced economies coupled with unforeseen events in international politics have led to unwinding of excessive liquidity created after the Global Financial Crisis, resulting in surge of capital flow volatility. With normalization having just begun with one systematically important central bank, there will be many more adversaries and unknowns along this process. Under this increasingly volatile condition, the extent of an economy’s buffers will be challenged. Effectiveness and limits of existing policy instruments will be tested, and free floating exchange rate may stabilize or amplify impacts of capital flow volatility. To navigate the impacts from globalized financial conditions, central banks will need to revisit their policy frameworks and menu list of policy tools.
After lunch, we will discuss issues related to macroeconomic policy challenges and structural transformation. Changing demographics, increasing globalization, movements towards populism, and widening inequality gaps are some of the powerful secular forces affecting business models, consumer demand, and production processes. The outcomes of which not only impact monetary policy transmission mechanism and complicate central banks’ conduct of policy but also raise the question of the appropriate role of central banks in fostering structural changes. Addressing these effectively may go beyond the scope of central banks’ existing mandates but, in many countries, may be crucial for ensuring long-term stability. The extent to which central banks can be involved with broader economic issues and reform policies could be in question. Partnerships with different agencies need to be formed while navigating political economy may be just as important. With the need to address structural
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transformation, central banks’ limited roles and narrow mandates may be under pressure, especially in emerging countries.
The last session of today’s seminar will discuss digital transformation and challenges for central banks. Rapid changes in technology have brought about innovations and platforms that reshape how consumers and businesses interact. In the financial sector, increasing adoption of digitized money along with the rise of BigTechs, Fintechs, and cross-border payment technologies have introduced new players who are not under central bank’s regulatory umbrella. These players can disrupt the financial landscape and reduce the importance of national borders. These will have implications on central banks’ conduct of polices as much of central banking – monetary policy, banking supervision, and payment and settlement system – is based on the world with national borders. Meanwhile, central banks can benefit from leveraging new technologies like big data analytics, machine learning, and distributed ledger technology, but it is also important to understand the risks involved. With financial innovations, the opportunities are wide-ranging, but the risks could also be substantial. Central banks need to find the right balance between having an open approach to allow innovations to prosper while ensuring that key risks can be managed.
Ladies and gentlemen,
Our 75-year journey highlights the importance of central bank’s policy autonomy, of how it allowed the Bank of Thailand to preserve economic and financial stability, take part in modernizing the Thai economy, and improve the standard of living of the Thai people. Yet, the three powerful forces of changing global financial conditions, structural transformation, and digital transformation can challenge the policy autonomy of central banks. Many uncertainties and unknowns remain and addressing them will require that central banks take a balancing act across different dimensions. On this note, I am delighted that today we will have the opportunity to learn from the wisdoms of many governors and speakers who are thought leaders on these issues. Once again thank you speakers and participants for your presence this morning. I wish you all a fruitful and joyful seminar.