SAN FRANCISCO—Two secular trends will shape finance in the years ahead, one powered from the bottom up by transformative technological innovations, and the other from the top down by geoeconomic influences. Managing each will require major adaptations from financial firms and their regulators, a task complicated by the fact that the two trends are pulling in opposite directions, and their resolution is not yet clear.
From a bottom-up perspective, AI, blockchains, and tokenization have the potential to make financial transactions faster and cheaper, yielding economy-wide productivity gains. But this promise comes with potential peril, including the risk of technology-driven job displacement and cybercrime.
On the positive side of the ledger, it is not hard to imagine a payments architecture operating on far more agile, cost-effective rails within the next five years. As operational frictions decline and transactions become near instantaneous, legacy systems will increasingly give way to those based on better technologies and more innovative products. And as counterparty risks decline, efficiency will improve.
These new instruments will feature prominently in both the public and private sectors, taking the form of new central bank digital currencies and stablecoins, respectively. They will not only enhance transactional efficiency but also crowd in a broader range of financial institutions, including non-banks. A new ecosystem will emerge to serve investors who are using AI not only to improve credit analysis and securities selection, but also to guide asset allocation and risk management.
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