The Impact of Artificial Intelligence on Central Banking and Monetary Policies

Abstract

The most important feature of the last twenty years in the world economy is the digitalization of the social and economic field. This new trend is a process that can not be analyzed by unconventional methods, approaches, and techniques. This process is a dynamic mechanism that involves rapidly spreading effects. Therefore, digitalization has revealed an economic and social situation in which institutions are constantly transformed, innovations are applied very quickly, and are in demand. The most important problem in the studies to be carried out on this subject is the discussions about the measurement of digitalization and whether its numerical indicators are representative of the process or not. The extent of digitalization in the economy is Fintech applications in industry 4.0 money markets and financial markets in real terms. In today’s business world, the size of the relationship between production and the market changes in the digital economy. Achieving the accumulation of knowledge in the economy at lower costs with the effect of digitalization has led to the production of an important digital information. This accumulation of knowledge led to changes in economic behavior and preferences in business models. The economic area where the effect of this change is seen most rapidly is the financial area. Digitalization in the financial area is emerging as a new source of risk. In this respect, the increase in the volume of financial data with digitalization made the necessity of new analysis techniques necessary. Data sets resulting from the increase in the volume of data are defined as big data. In general, these big data have high frequency and real time or instant data feature in the financial system. The analysis of these data is a basic tool for measuring financial risks with systemic financial risks and the risk level of the markets. Digital economy is defined as a new economic structure as a result of changing the structure of the internet and communication systems. In this new structure, economic relations are created within the framework of the relationships established between the platforms. Establishing relationships between people, firms, and institutions through platforms reveal a lot of digitizable data. The continuous accumulation of this data online makes it necessary to carry out continuous analyzes according to each piece of information that is constantly received. The analysis of the information as well as the information turns into a product of economic value. The most important tool for this new transformation is artificial intelligence. Artificial intelligence and deep learning methods with machine learning, which are its tools, also cause changes in the financial and monetary relations of the new economy. The first major impact of this change was on the banking system. The changes in the banking system and the digital currencies and the developments that emerged with Facebook’s announcement on the issue of the Libra currency cause changes in the primary functions of the central banks and in the monetary transfer mechanism. The main reason for the change in the primary function of the Central Bank and the change in the monetary transmission mechanism is the differentiation in the property of the money. The differentiation in the feature and function of the central bank has to redefine its functions along with the monetary definitions of the central banks. Within the framework of this trend, the aim of this study is to analyze the change in the structure of central banks, the characteristics of money, and the functions of monetary policies, with the artificial intelligence and digitalization process.