Artificial intelligence, such as the Bank of England Bot, is set to take over an increasing number of central bank functions. This column argues that the increased use of AI in central banking will bring significant cost and efficiency benefits, but also raise important concerns that are so far unresolved.
Financial institutions are increasingly outsourcing information technology to the cloud, motivated by efficiency, security, and cost. This column argues that the consequence is likely to be short- and medium-term stability at the cost of the increased likelihood of catastrophic systemic events. Cloud providers are systemically important and should be regulated as such.
The type of risk we most care about is long-term, what happens over years or decades, but we tend to manage that risk over short periods. This column argues that the dissonance of risk is that we measure and manage what we don’t care about and ignore what we do.
As central banks accumulate ever more job functions, their reputation risk increases. This column offers a cautionary tale from Iceland where, after the central bank was put in charge of capital controls, it was subject to severe attacks because of perceived mistakes in how the capital controls were enforced. The accumulation of powers erodes a central bank’s independence and subjects it to regulatory paralysis.
© All rights reserved, Jon Danielsson, 2020