The new BIZ innovation center is based in Frankfurt and Paris.
(Photo: dpa)
Frankfurt Raphael Auer has spent a lot of time where technological breakthroughs are made. The 45-year-old economist received his doctorate from Boston’s Massachusetts Institute of Technology (MIT). At the US elite university, researchers developed the basics for the World Wide Web or space technology for NASA.
Auer deals with innovations in the financial system. He sees great potential and great risks from recent advances in artificial intelligence (AI) and language models like ChatGPT. This means, for example, applications that use artificial intelligence to understand and interact with natural language. “This could revolutionize the financial system,” he says. “It’s impressive what such programs can already do, but above all how quickly they are developing.”
Auer heads the new innovation center of the Bank for International Settlements (BIS) – a kind of umbrella organization for central banks worldwide – in Frankfurt and Paris. It opened at the end of March and is part of a network of locations in Stockholm, London and Singapore, among others.
The European Central Bank (ECB) and the central banks in the euro system are involved in the project. The idea: International researchers with different backgrounds develop and test new ideas. A total of 18 scientists are involved.
The latest announcement by the financial data provider Bloomberg shows how much is currently happening through the use of language systems and AI. He wants to develop his own, large-scale model for artificial intelligence: BloombergGPT. It is designed to analyze financial data, assess risks and assess sentiment on the financial markets using special machine learning software.
>> Read here: What ChatGPT can do
Raphael Auer compares the current development through the use of AI in the financial sector with the emergence of high-frequency trading in the early 2000s. At that time, high-performance computers that act independently in microseconds and are based on algorithms changed the rules of the stock market trading game.
“In the past, some market players have invested heavily in high-frequency trading technical skills to gain a trading advantage,” says Auer. “I assume that there will be a similar development in models with artificial intelligence.” These could, for example, also analyze large amounts of unstructured data such as news articles or posts in social media.
The economist heads the new innovation center of the Bank for International Settlements (BIS).
(Photo: press photo)
The expert sees three main areas of application for AI and speech processing in the financial sector. In addition to e-commerce, he expects these to drastically change the relationship with customers and offer new ways of using data. For example, chatbots could understand and respond to customer inquiries. In addition, data could be evaluated and structured much more extensively using these technologies.
>> Read here: Checking AI – How well do algorithms invest my money?
This is where one of the current projects of the innovation laboratory called “Gaia” comes in. It is designed to help analysts quickly find climate-related information from companies. So far, this has been very complicated because there are no uniform standards at international level. For example, if you are looking for data on how sustainably companies have invested, you have to look for it in hundreds of thousands of reports on the Internet.
Gaia’s goal is to aggregate such data. “We need structured and internationally comparable data in order to be able to assess more precisely what risks climate change poses to financial stability,” emphasizes Auer.
Another project called “Atlas” is about collecting existing data on cryptoassets – for example on the market capitalization of individual cryptocurrencies or on the capital flows in these markets.
Experts assume that the data that individual exchange providers identify is often inflated. Because the actors want to be as high up in the rankings as possible. This makes it difficult for central bankers and other regulators to assess economic relevance and risks to financial stability.
As part of the project, Auer’s team, together with experts from the Bundesbank and the Dutch central bank, is evaluating data on the blockchain and from crypto exchanges. “In principle, anyone can evaluate and merge this data,” explains Auer. “We don’t do anything magical. But we have different incentives than other actors and can provide a more unbiased analysis.”
All in all, the projects of the new innovation center are very diverse. Research is also being carried out on encryption techniques, and the team is also working on digital central bank money. This involves technical solutions to facilitate cross-border transactions. Many more projects are to be added in the coming years.
More: Bundesbank looks for credit risks with artificial intelligence.