BIS official highlights financial stability risks from AI and digital finance
Mr Tao Zhang, BIS Chief Representative for Asia and the Pacific, highlighted the financial stability implications of artificial intelligence and digital finance, including tokenisation. He delivered these remarks at International Financial Week in Hong Kong on January 26, 2026.
The three channels of risk amplification
Artificial intelligence (AI) and digital finance, particularly tokenisation, are reshaping financial services and risk management.
While offering efficiency, they introduce new financial stability risks through three primary channels.
First, market functioning and liquidity: AI speeds up trading, and digital claims can move faster than underlying assets, amplifying volatility during stress.
Second, operational dependencies: reliance on concentrated providers (e.g., cloud services, data) creates systemic risk from disruptions or cyber attacks.
Third, stress propagation: widespread use of similar AI models and new interdependencies from tokenisation can amplify shocks and spread stress rapidly across institutions and jurisdictions.
These changes increase the intensity, speed, and complexity of financial stability risks, complicating identification and management for central banks.
Drivers and benefits of digital transformation
AI adoption is driven by rapid advances in computing power, data availability, and model capabilities, alongside firms seeking productivity gains, cost reductions, and competitive advantages.
Digital finance, broadly defined, refers to the increasing digitalisation of financial assets, processes, and infrastructures, with tokenisation as a key component.
Tokenisation, the digital representation of financial assets using technologies like distributed ledger technology, can improve efficiency in transactions, settlement, and collateral management.
It also has the potential to reduce frictions in cross-border payments.
Together, these innovations enhance efficiency, reduce costs, and support more integrated financial markets.
However, these same developments fundamentally alter how risks emerge and propagate, posing challenges for regulators and supervisors.
Innovation's double-edged sword
The rapid evolution of AI and digital finance presents a fundamental dilemma for central banks.
While promising significant efficiency gains, these technologies simultaneously amplify and accelerate existing financial stability risks.
Effective international cooperation and adaptive governance frameworks are therefore paramount to harness innovation without jeopardizing systemic resilience.