Yuval Noah Harari, the bestselling author, philosopher, and historian, has issued a stern warning about the potential risks posed by the unbridled use of artificial intelligence (AI) in the financial system. Speaking at the Bank for International Settlements (BIS) Innovation Summit, Harari emphasized the need for strong institutions to keep AI in check, lest it spiral out of control.

At the heart of Harari's concerns lies the pivotal role that the financial system plays in creating trust. Money, bonds, and other financial instruments enable millions of strangers to collaborate and work towards common goals. However, Harari argued that financial regulation has become increasingly incomprehensible "to humans," raising the question, "What happens when that number goes down to zero?"

Harari drew parallels between the current situation and the financial crisis of 2007-2008, which he attributed to the inability of regulators to fully understand and regulate new, complex financial products. This lack of understanding, he argued, could be exacerbated by the introduction of AI-powered financial innovations that may be beyond human comprehension.

"AI is an alien form of intelligence that is only at the beginning of its evolution," Harari cautioned. "It does not reason the way humans do and could easily create financial devices that are beyond human imagination, shifting power away from politicians and regulators to algorithms."

In such a scenario, trust relationships would be built between AI systems rather than between people, and in the event of a financial crisis, politicians and regulators would be forced to rely on the trust placed in these AI systems. This disruption of traditional trust relationships could ultimately lead to social instability, Harari warned.

Compounding the issue is the already declining trust in politicians and institutions, a trend that Harari acknowledged. "We need to prevent AI from becoming completely unfathomable," he stressed. "We need the ability to understand it and regulate it."

Harari emphasized that regulation should not be left to geniuses or "charismatic leaders" alone. Instead, he advocated for the establishment of robust institutions capable of "keeping humans in the loop" and ensuring that AI remains comprehensible and subject to oversight.

However, even with institutional safeguards in place, Harari acknowledged the potential dangers inherent in the development of world-changing innovations. He drew parallels between the evolution of AI and historical examples such as imperialism, communism, and Nazism, which he described as "failed attempts to build industrialized societies" that resulted in tens of millions of victims.

Crucially, Harari highlighted AI's capacity to generate ideas about how to use itself, underscoring the urgency of establishing appropriate regulatory frameworks and maintaining human control over these powerful systems.

To mitigate the risks posed by unchecked AI in finance, Harari stressed the need for regulators to concentrate on building and fostering trust between people. By doing so, the future financial system can be better positioned to remain stable and human-friendly, even as it incorporates increasingly sophisticated AI technologies.

As the integration of AI into various aspects of society, including finance, continues to accelerate, Harari's warnings serve as a sobering reminder of the importance of proactive regulation and the maintenance of human oversight. Failure to heed these cautions could lead to a future where trust in the financial system is eroded, potentially catalyzing social instability and adverse consequences on a global scale.