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The founders of the euro hoped that people in all the member states of the European Union (EU) eventually would come to view the common currency as their own. This goal seemed especially difficult to achieve in Germany, where the national currency – the Deutsche Mark (DM) – served as an enviably stable European benchmark for decades. Remarkably, surveys now suggest that the euro’s founders’ hopes have been fulfilled: the common currency is at its height of popularity in Germany. In addition, the euro clearly inherited the DM’s stability, with annual inflation in the euro area averaging 2.1% since the currency’s inception in 1999.

Yet, both economic and political developments make this popularity (and the euro’s stability) appear ironic….

Artificial intelligence (AI) progress over the past five years is triggering a broad new wave of interest. In sectors ranging from healthcare to transportation, many firms as well as governments hope that AI will cut costs, improve quality, broaden access, and create new goods, services and markets. Meanwhile, AI firms are rushing to create “artificial general intelligence” (AGI) that would surpass human cognition. From there, it seems like only a short step to fully autonomous robots.

In this post, we focus on the impact of AI on financial stability. To foreshadow our conclusions, current forms of AI are likely to amplify existing threats to financial stability. To prepare, public authorities need to adapt their tools (such as capital and liquidity requirements) to safeguard financial stability. Looking further forward, the prospect of autonomous “AI agents” – which can gather and assess information as well as make and implement decisions – means that the day could soon come when timely human intervention to protect the financial system will no longer be feasible. Instead, only agents acting at speed (and with information) at least comparable to those of private-sector AIs will be able to keep finance safe. To address these challenges regulators and supervisors need to invest heavily in AI—hardware, software and skilled personnel. Put simply, only public AI will be able to mitigate the risks that private AI creates.