“The heavy reliance on AI can lead to concentration risks, especially when a small number of technology providers dominate the market. This can amplify systemic risks, as failures or disruptions in these systems may cascade across the entire financial sector. Moreover, the growing use of AI spawns new vulnerabilities, such as increased susceptibility to cyberattacks and data breaches.“Additionally, AI’s opacity makes it difficult to audit or interpret the algorithms which drive decisions. This can potentially lead to unpredictable consequences in the markets. Therefore, banks and other financial institutions must put in place adequate risk mitigation measures against all these risks. In the ultimate analysis, banks have to ride on the advantages of AI and Bigtech and not allow the latter to ride on them,” said Das and pointed to last years run on a few American banks after massive cash withdrawals through the online medium.Noting that central banks are treading in the uncharted terrain of a twilight zone today, especially since the pandemic and the onset of the Russia-Ukraine war in February of 2022, he said “today, like never before in the five centuries of their existence, central banks are confronted with a future where their mandates, their functions and their performances are all up for unforgiving scrutiny leading to a tectonic transformation in the environment they are operating now.”Structural changes are underway that have the power to fundamentally alter the context of central banking with headwinds from geo-economic fragmentation; muscular industrial, trade and financial policies that are already reshaping supply chains and the availability of critical minerals, intermediates, resources and services; new technologies; and climate change, he said noting in this rapidly evolving environment, central banks are required to navigate not just known unknowns but unknown unknowns too.
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