I believe we are only just starting to see the beginning of this. The future could be one where physical bank branches are just a memory – like public telephones on the street. Artificial intelligence (AI) will lead to all sorts of possibilities in terms of client-behaviour and data analytics, and probably in areas we do not even anticipate. 44. The potential is in some ways very exciting, but it also raises all sorts of concerns. Cybersecurity and data privacy are ones we all already face. But what about the possible implications for risk management? We do not know where new technology might lead us – so by definition we cannot predict what the risks will be. And what about the human factor in the relations between banks and customers? An AI system may be very smart, efficient and accurate – but will it have an understanding of morality? Can it make the right ethical judgement? Can it have a sense of fairness or decency? 45. I must be honest and say I cannot answer these questions. But it is clear that new capabilities for technology will require new capabilities from people. The industry could be entering a very different dynamic, where what is now a decade of change takes place in a year. Culture 46. This is going to put new burdens on all of us. I believe that, more than ever, we will need a basic sense of purpose to help us keep everything in perspective.
At the same time, the rising importance of services has impinged on the inflation process. Services prices tend to be more rigid than goods prices because they embody a larger share of labor input, and wages tend to be sticky. This may have contributed to inflation having become more persistent. At the same time, the digital revolution has driven the prices of many modern services, such as telephone calls, news, and entertainment to essentially zero. 4  The upshot is that the link between inflation and domestic measure of economic slack, as traditionally captured in the Phillips curve, has weakened and disappeared altogether in some cases. In terms of growth, slowing global trade and the rise of services implies slower and less capital intensive economic growth. For highly open economies, slowing world trade has undermined export as a growth engine. At the same time, the transition to services has also contributed to the growth headwinds given that modern services is less labor and capital intensive than manufacturing. Think of Google’s 40,000 workforce compared to General Motors’ 800,000. Or the fact that Uber is the world’s largest provider of auto transport without owning any cars. Or that AirBNB is one of the world’s biggest provider of accommodation without owning a single hotel. Given that investment is a relatively interest rate sensitive activity, to the extent that the transition to services has dampened investment, it may have also made the economy less responsive to monetary policy.