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Digitalisation and the strategy review

Our world is becoming ever more digital. This also changes the way the economy works. While we adjust our monetary policy to keep prices stable, we always do so with the economy in mind. So it is important that we at the ECB understand how digitalisation affects the economy.

Why was digitalisation part of our strategy review?

Digitalisation affects the economy

Our job is to keep prices stable. To do that well, we need to understand how our economy works, and that is something that is changing rapidly. The last time we carried out a strategy review, in 2003, people still used fax machines to do business. Now they use smart phones.

Digitalisation is one way that the economy has changed. For example, we can now do most of our shopping online instead of going to the shops. We can pay with our phones, skipping the visit to the bank to withdraw cash. And we can stream movies on mobile devices, with new technology replacing the old video rental shops.

Because of its impact on the economy, digitalisation can also affect how we keep prices stable. That is why the Governing Council discussed digitalisation as part of our Strategy Review.

In what ways does digitalisation affect our monetary policy?

Digitalisation can affect prices

Today, we can compare prices from around the world at the click of a button, allowing us to find the lowest price within seconds. This means that businesses cannot increase prices without running the risk of customers turning to the next cheapest online offer. That can keep inflation – the rate at which the overall prices for goods and services change over time – low.

It also makes measuring prices trickier

To do our job well, we need a reliable measure of inflation. But digitalisation makes measuring prices more challenging. For example, technology now allows firms to charge different prices to different customers for the same product. Lots of the services for which we used to pay have become “free”. These changes can make it more difficult to measure inflation.

Digitalisation affects the environment in which monetary policy operates

New digital technologies replacing old ones can affect industries and the type of jobs that are in demand. That changes the economy. While we adjust our monetary policy to keep prices stable, we always do so with the economy in mind. To make the right decisions, we first need to understand how the economy is likely to react to them. That means keeping on top of developments like digitalisation.

A future with digitalisation

During the recent pandemic, we all saw how many people embraced digital technologies. Digitalisation has become a bigger part of our everyday lives. It is here to stay and will continue to change the way we live, and the way our economy works. That is why it is important that we continue to understand how digitalisation is affecting the economy.

Digitalisation: channels, impacts and implications for monetary policy
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