Pablo Hernández de Cos (Madrid, 1970) opens the door to his office and the light comes on. It enters through three enormous, very high balconies, like an impossible holy trinity in the centre: advantages of being governor of the Bank of Spain. A work by Miguel Ángel Campano fills a huge wall, like everything in this building. “It is a painting that generates mixed feelings. I like that”, he says. The bookcases are hidden by opaque glass, for more privacy. Although this detail, he admits, it took him a long time to realize, because he usually doesn’t look up from his desk, which is why his look is a privilege.
– In an increasingly digital world, the last two major economic crises stem from phenomena as old and analogous as man: a pandemic and a war. Will the economy always be sensitive to such phenomena? Are we doomed to suffer potholes every time the world shakes like this?
– Economic activity will always be affected by such shocks. It’s probably unavoidable. Our responsibility as economic policy makers is to minimize its effects. And history teaches us that this requires permanently maintaining a healthy economy, which does not accumulate macroeconomic imbalances, and which is sufficiently flexible. It also requires building up buffers in good times, for example in fiscal terms or in terms of capital buffers in the banking sector. And, of course, this requires decisive economic policy action when these shocks occur, to prevent their negative effects from lasting over time.
– With the coronavirus crisis, it turned out that our confidence in logistics was excessive, and that it (makes us) vulnerable: the borders were closed and we lacked medical supplies, among other things. Now something similar has happened with energy: we are too dependent, and it weighs us down. Do you think that we have made the relevant reflection on how we must face the coming time so as not to fall back into the same mistakes?
– It is important to stress that globalization – and the interdependence associated with it – has been very positive in improving the efficiency, productivity and, ultimately, the growth of our economies. The counterpart is, of course, that it makes us more vulnerable to an increasingly complex environment. As a result, the focus has now shifted from efficiency to safety and range considerations. This is why the European Union has launched an ambitious agenda to increase strategic independence. The key, but also the difficulty, is how to achieve these new goals while retaining the essential benefits of globalization.
– By the way, do you believe that the European Union will continue to exist in twenty or thirty years? What could his disappearance mean for the Spanish economy?
– Sure. The only vehicle that has enabled European citizens to live in peace and prosperity over the past centuries is the European Union. On a purely economic level, it is good to remember that the European Union has done more to strengthen its financial architecture in fifteen years than the United States in its first hundred years of existence. And most importantly: the most appropriate response to all the current challenges we face necessarily involves deepening the European project.
– In the future, with the greater impact of climate change and the resulting rise in temperatures, will tourism remain a valid vector of growth? Or should we orient our production model towards other sectors?
– Productivity, productivity and productivity. These are the keys to long-term well-being. And it can be improved in these areas with very different sectoral structures. The responsibility of public policies is precisely to provide the conditions that favor the growth of productivity, through an optimal design of the education system, guaranteeing an innovative environment and competition between companies, favoring an adequate functioning of the labor market, etc.
“The cash will be with us as long as citizens continue to use it”
– There is a generation that until now did not know what inflation was. We are coming from a very stable decade, but now prices have started to rise. Do we have to get used to living with long-term inflation, that money is not free, that interest rates on loans are high?
– Indeed, we come from a long period when inflation had been at very low levels. Today, after the pandemic and with Russia’s invasion of Ukraine, we are seeing a strong rebound in inflation. Preventing it from becoming persistent, with the resulting negative effect on the real income of families and businesses, and ultimately economic growth, is the fundamental reason why monetary policy began, and more recently accelerated a process of interest rate normalization. Citizens should have no doubts about the willingness and ability of the European Central Bank to bring inflation rates back to our medium-term target of 2%. Price stability is the mandate that citizens have given us and we are going to fulfill it.
– It seems that, more and more, cash is becoming almost obsolete, archaic. Is it doomed to disappear?
– Cash will be with us as long as citizens continue to use it. But citizens are also demanding other forms of money, especially in electronic form. And central banks are obliged to make it available with all the guarantees of security and financial stability.
– How do you see the cryptocurrency market? Do you see them as a threat to traditional banks and how they operate in the economy?
– Creo that is important to distinguish between the technologies that are detrás de trás de muchas criptomonedas, que pueden ser valiosas, también para el sector bancario, y el design, del processo de emisión, valuation y negociación de las criptomonedas en la que, literally, hay de everything. They range from simple numerical representations of traditional financial assets to purely speculative schemes. For this reason, more than a threat to banks, what I see as a threat to citizens is that they invest in this world without being fully aware of the risks they are assuming.
– One of the criticisms made of crypto-currencies is that, due to their decentralization, they make it difficult to apply monetary policies. What do you think about this? Can they become too dangerous because they are, in part, uncontrollable?
– I insist, the main danger that I see in this world today, especially in developed countries, and which has unfortunately partly materialized, is that citizens invest their money in products without understanding the risks.
– NFT technology allows the exclusivity of digital properties, and everything indicates that the development of the metaverse will go in this direction: towards the creation of a digital society with its own economy, where we can be owners. How important do you think the metaverse economy will be?
– I am intellectually curious about the transformative potential these technologies promise but, honestly, I don’t know to what extent they will be able to transform this power into action.
– It gives the feeling that we are moving from a landlord society to one where renting or pay-as-you-go is more common. How do you see this trend? Is it something inevitable? Do you think you can change the economic system?
– I wouldn’t draw any major conclusions from these developments, because we don’t know, in the case of housing for example, whether they are the result of new preferences or difficulties of accessibility to purchases for new generations. In any case, everything indicates that in the future the most important thing will be human capital, which no one can take away from us as individuals. Of course, it can be amortized; this is why it is important to invest in it continuously throughout life. This long-term capital is really relevant to modifying an economy, not if we own the car or “carpool”.
“The most appropriate response to all the current challenges necessarily involves deepening the European project”
– Let’s talk about work now. What predictions do you have for the labor market of the future? In your opinion, what will be the major professions of the future?
– Those who do not know how to make machines. Those that require imagination or an uncodifiable talent.
– Experts agree that we are living through a fourth industrial revolution, marked in large part by the development of artificial intelligence and quantum computing. These technologies promise an increase in productivity, but also the destruction of many jobs, for example mechanical. Do you think these jobs will be replaced by new ones or do you have to accept that the unemployment rate will increase further?
– If robotization frees us from the most repetitive and mechanical tasks, we will be able to cultivate and exploit talents more. It is not obvious how this will be done and that is why the process of creating value in the economy is a decentralized process that sometimes requires a lot of trial and error. In any case, the structural level of unemployment in the countries is more a matter of the institutional framework. Thus, in the rest of the European countries, unemployment has been lower than in Spain with or without artificial intelligence. This does not mean that these technological transformations will not have an impact, that they will have a lot.
– In this sense, what role should education have? What should we do to improve human capital with a view to the future?
– Education is crucial. In fact, it is the prerequisite (necessary but not sufficient) of productivity which, as I have said before, is the key to lasting prosperity. And it is also essential to ensure the equality of opportunity that every society should aspire to. I believe that its constant improvement must be a national priority, in pursuit of excellence.
– By the way, financial education in Spain is still an open issue, don’t you think? What measures do you consider necessary for the population to have a minimum of training in this area? Today it is not uncommon to find people who do not know how to issue an invoice, who cannot read a bank receipt or a letter from the Treasury.
– Spain is “in the middle of the table” in terms of the financial skills of the population. In any case, there is still a lot of work to be done and that is what we are doing at the Bank of Spain, as promoters, for example, of the Financial Education Plan. In any case, to achieve substantial improvement in this area, these subjects should be promoted in the school curriculum at a relatively early age.
– Our society is aging, and it is also more vibrant than ever, with which the cost of pensions continues to rise. At the same time, young people are increasingly starting to work later and in more precarious and less well-paid jobs. What horizon awaits us?
– A horizon of great challenges that we must face with a long-term vision. This is why I have been advocating since the beginning of the pandemic the need to reach broad political and social agreements that allow us to face structural reforms and the process of budgetary consolidation to give security to our elders and prospects for prosperity. to our young people.