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1 Introduction
Ladies and gentlemen,
A few years ago, Dario Caldara and Matteo Iacoviello, economists at the Federal Reserve, proposed a news measure for unfavorable geopolitical events and risks – a measure they called the Geopolitical Risk Index. Technically, the index is based on the share of articles mentioning unfavorable geopolitical events in leading newspapers in the United States, the United Kingdom, and Canada. According to this index, we are currently – not surprisingly – living in a time of high geopolitical risks. Last year, for example, the index averaged 145, which is only slightly below the value of 158 we saw in 2022 – the year when Russia launched its comprehensive invasion of Ukraine. For comparison, in the pandemic year 2020, the average was 78. And in the first month of this year, the index is already at 164, almost as high as the average of 2001. In the past decades, the index peaked in 2001, triggered by the September 11 terrorist attacks.
We all know that geopolitical events and risks can impact the economic activities of households and businesses, especially investments. In my speech, however, I would like to address the potential challenges that the new geopolitical reality poses for European monetary policy. I will discuss three points: inflation volatility, central bank independence, and the rise of stablecoins.
2 Inflation Volatility
Let me start with the first one – inflation volatility. Unfavorable geopolitical shocks can increase inflation volatility. I noticed this shortly after Russia’s invasion of Ukraine. At that time, energy prices experienced a significant increase. There were disruptions in some supply chains, especially in food. This, combined with the economic disruptions caused by the pandemic, led to the largest inflation wave since the 1970s. Fortunately, despite significant trade conflicts last year, we managed to keep inflation under control. However, there is no guarantee that similar shocks will not occur in the future.
Given the post-pandemic developments, the Eurosystem updated its monetary policy strategy last year. It acknowledges that geopolitical and economic fragmentation can lead to more volatile inflation dynamics. It is important to be able to respond agilely to new shocks. The revised strategy addresses this need.
In particular, it proposes strong or lasting measures in response to strong or persistent deviations from our inflation target, both in a positive and negative direction. This point emphasizes the symmetry of our inflation target and addresses the criticism that our monetary policy strategy in the past has placed more emphasis on overshooting the target. Finally, I consider it essential that we continue to reduce the size of our balance sheet, as this increases the room for monetary policy measures in unexpected scenarios.
Moreover, the recently revised Eurosystem strategy states that we will rely more on scenario analysis in our forecasts, rather than focusing on a single, most likely base scenario. This approach will allow us to consider risks and uncertainties more comprehensively and systematically.
3 Central Bank Independence
Let me move on to the next agenda item: central bank independence. As we all know, the independence of the central bank is crucial for price stability. The theoretical basis for this claim can be traced back to the groundbreaking work of Kydland and Prescott, published almost fifty years ago. Empirical studies show a negative correlation between the degree of independence of a central bank and the level of inflation: the more independent a central bank is, the lower the inflation – all other things being equal.
However, the increasing geopolitical competition between countries could increase pressure on independent central banks to prioritize fiscal goals over inflation containment. We currently see significant political pressure on the Federal Reserve. If this political pressure is successful, it could serve as a model for politicians in other countries to pursue similar policies. If this were to happen, inflation could rise globally.
As the world economy is interconnected, the political pressure of a single country could also make it more difficult for the Eurosystem to pursue price stability. That is why it is so important for me to make a clear commitment to the independence of central banks. In the case of the Eurosystem, independence is enshrined in the primary law of the European Union. However, we must not become too self-confident. We will always be vigilant about our own independence.
4 The Rise of Stablecoins
The last topic I want to address is the growth of stablecoins. You have probably heard that the US government officially promotes the market for crypto-assets, especially the market for stablecoins pegged to the US dollar. Stablecoins are crypto-assets designed to maintain a stable value relative to a specific asset, which is typically a national currency, a commodity, or a financial asset. While stablecoins represent a small market share compared to other «money-like» assets such as deposits, they have experienced strong growth recently. Currently, their market size is just over $300 billion, depending on the definition.
To be clear: stablecoins have benefits. For example, they open the door to programmable transactions, which are not yet an option in central bank money. Additionally, stablecoins could facilitate cross-border payments by reducing transaction costs and payment times. However, the rise of stable currencies could pose risks to the Euro area if stable currencies, especially those pegged to a foreign currency, are widely used as means of payment and store of value in the Euro area.
Currently, the share of Euro-denominated stablecoins is less than 1 percent. Instead, the vast majority of stablecoins are denominated in US dollars. Therefore, if this market composition remains, a hypothetical replacement of a national currency with stable currencies would amount to dollarization of the respective economy.
In this scenario, the effectiveness of domestic monetary policy could be seriously compromised, not to mention that European sovereignty could be weakened.
Fairly speaking, the Euro is a stable currency supported by a secure financial system and an attractive payment infrastructure. Therefore, the risk of this scenario materializing is low. However, to further decrease the probability of this scenario occurring, we are considering how to optimally leverage new technological opportunities.
Firstly, in my view, it involves the introduction of a wholesale digital central bank currency – CBDC. This would allow institutional actors in financial markets to conduct programmable transactions in central bank money. Furthermore, the introduction of a European wholesale CBDC would make our financial system more efficient and resilient. The Eurosystem has already conducted the necessary exploratory work in this area and is proceeding with two projects. The aim of one of these projects is to introduce a wholesale CBDC interoperability solution this year. Secondly, the Eurosystem could support distributed ledger technology (DLT) payment instruments that are not directly related to central bank money, especially tokenized deposits and euro-denominated stablecoins.
These measures will enable us to leverage cutting-edge digital technologies to maintain the effectiveness of our monetary policy in an uncertain geopolitical future. Additionally, they will strengthen our sovereignty.
5 Concluding Remarks
Ladies and gentlemen,
Let me conclude. What will be the average of the geopolitical risk index by Caldara and Iacoviello this year? Will it exceed the level of 2001? Only time will tell. Should we take comfort in the fact that we are far below the values of the world wars? I truly hope we do not reach that level again.
What can central banks do? In my opinion, we should strictly fulfill our mandate even in times of fundamental change. This entails focusing on price stability, maintaining our independence, and addressing all risks that may arise from new digital technologies.
Footnotes:
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Caldara, D. and M. Iacoviello (2022), Measurement of Geopolitical Risk, American Economic Review, Vol. 112 No. 4, pp. 1194–1225.
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See Caldara and Iacoviello (2022); Bondarenko et al. (2025), Geopolitical Risk in the Euro Area: Measurement and Transmission, Mimeo.
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Kydland, F.E. and E.C. Prescott (1977), Rules Rather than Discretion: The Inconsistency of Optimal Plans, Journal of Political Economy, Vol. 85, pp. 473-492.
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Cukierman, A., Webb, S.B., and B. Neyapti (1992). Measurement of Central Bank Independence and its Effects on Policy Outcomes, World Bank Economic Review, Vol. 6, No. 3, pp. 353-398.
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Stablecoin market kicks off 2026 with a new record value of $310 billion – Crypto News Bitcoin News
for SEO purposes and maintaining the same structure of the links (dofollow or nofollow) as they appear in the original text. Dieser Ansatz wird es uns ermöglichen, Risiken und Unsicherheiten umfassender und systematischer zu berücksichtigen.
Die Unabhängigkeit der Zentralbank ist von entscheidender Bedeutung für die Preisstabilität. Die bahnbrechende Arbeit von Kydland und Prescott vor fast fünfzig Jahren legte die theoretische Grundlage für diese Behauptung. Empirische Studien zeigen einen negativen Zusammenhang zwischen dem Grad der Unabhängigkeit einer Zentralbank und der Höhe der Inflation. Je unabhängiger eine Zentralbank ist, desto geringer ist die Inflation unter sonst gleichen Bedingungen.
Der geopolitische Wettbewerb zwischen den Ländern könnte den Druck auf unabhängige Zentralbanken erhöhen, fiskalpolitischen Zielen Vorrang vor der Eindämmung der Inflation einzuräumen. Dies könnte weltweit zu einer Erhöhung der Inflation führen. Es ist daher wichtig, ein klares Bekenntnis zur Unabhängigkeit der Zentralbanken abzugeben.
Das Wachstum von Stablecoins, insbesondere solche, die auf den US-Dollar lauten, ist ein weiteres wichtiges Thema. Stablecoins haben Vorteile, wie die Möglichkeit programmierbarer Transaktionen und die Erleichterung grenzüberschreitender Zahlungen. Jedoch könnten sie Risiken für den Euroraum mit sich bringen, insbesondere wenn sie eine Dollarisierung der Wirtschaft fördern.
Es wird diskutiert, wie die Einführung einer digitalen Zentralbankwährung im Großhandel und die Unterstützung von DLT-Zahlungsinstrumenten dazu beitragen können, die Wirksamkeit der Geldpolitik zu erhalten und die Souveränität zu stärken.
In Zeiten grundlegender Veränderungen sollten Zentralbanken weiterhin den Fokus auf Preisstabilität legen, ihre Unabhängigkeit wahren und Risiken im Zusammenhang mit neuen digitalen Technologien angehen.
Es bleibt abzuwarten, wie sich das geopolitische Risiko in diesem Jahr entwickeln wird und welchen Herausforderungen Zentralbanken gegenüberstehen werden. Durch eine konsequente Erfüllung ihres Auftrags und die Anpassung an neue Entwicklungen können Zentralbanken ihre Rolle in der Wirtschaft stärken und die Stabilität des Finanzsystems gewährleisten. Check Against Delivery.
1 Introduction
Ladies and gentlemen,
A few years ago, economists Dario Caldara and Matteo Iacoviello of the Federal Reserve proposed a news measure for adverse geopolitical events and risks – a measure they called the Geopolitical Risk Index.[1] Technically, the index is based on the share of articles mentioning adverse geopolitical events in leading newspapers in the United States, the United Kingdom, and Canada. According to this index, we are currently living – not surprisingly – in a time of high geopolitical risks. Last year, for example, the index averaged 145, which is only slightly below the value of 158 we saw in 2022 – the year Russia began its comprehensive invasion of Ukraine. For comparison, in the pandemic year of 2020, the average was 78. And in the first month of this year, the index is already at 164. That is almost as high as the average of 2001.[2] In recent decades, the index peaked in 2001, triggered by the September 11 terrorist attacks.
We all know that geopolitical events and risks affect the economic activities of households and businesses, especially investments.[3] In my speech, however, I would like to address the potential challenges that the new geopolitical reality poses for European monetary policy. I will discuss three points: Inflation volatility, Central Bank independence, and the rise of Stablecoins.
2 Inflation Volatility
Let me start with the first one – inflation volatility. Adverse geopolitical shocks can increase inflation volatility. I noticed this shortly after Russia’s invasion of Ukraine. At that time, energy prices experienced a significant increase. There were disruptions in some supply chains, especially in food. This added to the economic disruptions caused by the pandemic and led to the largest inflation surge since the 1970s. Fortunately, despite significant trade conflicts last year, we managed to keep inflation under control. However, there is no guarantee that similar shocks will not occur in the future.
In light of post-pandemic developments, the Eurosystem updated its monetary policy strategy last year. It is recognized that geopolitical and economic fragmentation can lead to a more volatile inflation dynamics. It is important to be able to respond agilely to new shocks. The revised strategy takes this need into account.
In particular, it proposes strong or lasting measures in response to strong or sustained deviations from our inflation target, both in the positive and negative direction. This point emphasizes the symmetry of our inflation target and addresses the criticism that our monetary policy strategy in the past placed more emphasis on overshooting the target. Lastly, I believe it is essential that we continue to reduce the size of our balance sheet, as this increases the room for monetary policy measures in unexpected scenarios.
Furthermore, the recently revised strategy of the Eurosystem states that we will rely more on scenario analyses in our forecasts, rather than focusing on a single, most likely base scenario. This approach will allow us to consider risks and uncertainties more comprehensively and systematically.
3 Central Bank Independence
Let me move on to the next item on the agenda: Central Bank independence. As we all know, the independence of the Central Bank is crucial for price stability. The theoretical basis for this claim can be traced back to the groundbreaking work of Kydland and Prescott, published almost fifty years ago.[4] Empirical studies show a negative correlation between the degree of independence of a Central Bank and the level of inflation: The more independent a Central Bank is, the lower the inflation – under otherwise similar conditions.[5]
However, the increasing geopolitical competition between countries could raise pressure on independent Central Banks to prioritize fiscal goals over inflation containment. We currently see significant political pressure on the Federal Reserve. If this political pressure succeeds, it could serve as a model for politicians in other countries to pursue similar policies. If this were to happen, inflation could rise globally.
As the world economy is interconnected, the political pressure from a single country could also make it more challenging for the Eurosystem to pursue price stability. This is why it is so important for me to make a clear commitment to the independence of Central Banks. Now, in the case of the Eurosystem, independence is enshrined in the primary law of the European Union. However, we must not become too self-assured. We will always be vigilant about our own independence.
4 The Rise of Stablecoins
The last topic I want to address is the growth of Stablecoins. You have probably heard that the U.S. government officially promotes the market for crypto-assets, especially the market for Stablecoins pegged to the U.S. Dollar. Stablecoins are crypto-assets designed to maintain a stable value relative to a specific asset, typically a national currency, commodity, or financial value. While Stablecoins represent a small market share compared to other «money-like» assets such as deposits, they have experienced strong growth in recent times. Currently, their market size is just over $300 billion, depending on the definition.[6]
To be clear: Stablecoins have benefits. For example, they open the door to programmable transactions, which are not yet an option in Central Bank money. Additionally, Stablecoins could facilitate cross-border payments by reducing transaction costs and payment times. However, the rise of stable currencies could bring risks to the Euro area if stable currencies, especially those pegged to a foreign currency, are widely used in the Euro area as a means of payment and store of value.
Currently, the share of Euro-denominated Stablecoins is not even 1 percent. Instead, the vast majority of Stablecoins are pegged to the U.S. Dollar. If this market composition remains unchanged, hypothetically replacing a national currency with stable currencies would be akin to dollarization of the corresponding economy. In this scenario, the effectiveness of domestic monetary policy could be seriously compromised, not to mention the potential weakening of European sovereignty.
Fairly speaking, the Euro is a stable currency supported by a secure financial system and an attractive payment infrastructure, reducing the likelihood of this scenario. However, to further mitigate the probability of this scenario, we must consider how to optimally leverage new technological opportunities.
Firstly, I believe it involves introducing a wholesale digital central bank currency (CBDC). This would enable institutional actors in financial markets to conduct programmable transactions in central bank money. Additionally, the introduction of a European wholesale CBDC would make our financial system more efficient and resilient. The Eurosystem has already conducted the necessary exploratory work in this area and is proceeding with two projects. One of these projects aims to introduce a wholesale CBDC interoperability solution this year. Secondly, the Eurosystem could support distributed ledger technology (DLT) payment instruments not directly linked to central bank money, especially tokenized deposits and Euro-denominated stablecoins.
These measures will allow us to leverage cutting-edge digital technologies to maintain the effectiveness of our monetary policy in an uncertain geopolitical future and strengthen our sovereignty.
Concluding Remarks
Ladies and gentlemen,
Let me conclude. What will be the average of Caldara and Iacoviello’s geopolitical risk index this year? Will it surpass the level of 2001? Only time will tell. Should we take comfort in being far below the values of the world wars? I truly hope we do not reach that level again.
What can central banks do? In my opinion, we should strictly fulfill our mandate even in times of fundamental change. To do so, we must focus on price stability, maintain our independence, and address all risks associated with new digital technologies. Please rewrite this sentence.
QUELLEN
