Lane discusses euro's role in evolving global financial landscape

Lane emphasized that structural shifts like geopolitics, digitalization, AI, demography, and climate change represent common shocks for Europe, which a monetary union is better equipped to handle.

A larger-scale monetary system offers insulation against exchange rate shifts and enables more efficient operation of market infrastructure and payment systems.

He cited the digital euro project and the Pontes/Appia initiatives as examples of infrastructural innovations that ensure central bank money adapts to technological developments.

These projects, which would be more challenging for smaller national systems, aim to maintain central bank money's essential role in integrated financial ecosystems, reducing the likelihood of transactions migrating to foreign-currency systems.

This scale also supports a higher proportion of trade and financial transactions denominated in the domestic currency, both internally and externally.

The speech highlighted that scale matters for the efficiency, breadth, and liquidity of the financial system, allowing euro area residents to allocate assets cross-border without currency risk.

This also makes the market more attractive for foreign investors and for funding supranational initiatives like Next Generation EU.

While acknowledging past fragmentation risks during the 2008-2013 crises, Lane asserted that the euro area's financial architecture is now far more resilient.

He listed key reforms, including increased banking system capitalization, the Single Supervisory Mechanism, macroprudential measures, the Single Resolution Mechanism, and the expansion of the ECB's policy toolkit with instruments like the Transmission Protection Instrument.

These reforms have enhanced the role of common factors in the euro area bond market, reducing inter-country spread volatility.