Copyright © HT Digital Streams Limit all rights reserved. Derek Horstmeyer, The Wall Street Journal 3 min Read 26 Jun 2025, 06:57 AM IT The William McChesney Martin Jr. Federal Reserve Building in Washington, DC, USA, on Wednesday, June 25, 2025. Photographer: Al Drago/Bloomberg (Bloomberg) Summary Your computer can take out a loan soon, approved by a bank’s computer. Millions of such transactions can determine the money supply. Presidents of the Federal Reserve were clear about their concerns about the potential effects of artificial intelligence on productivity, bank customer service and revolution in the labor market. But the Fed may ignore another AI issue that can dwarf all others: AI’s upcoming ability to create money and credit – and thus determine the money supply in our economy. It may sound like science fiction, but AI is likely to start controlling the extension of credit and the money supply in the next few years. This is a big problem for the Fed if it does not easily make the way in which AI makes its decisions or limits to follow the central bank’s underlying interest rate policies. Here is how it will work: Individual users will start with personal assistance AIS, as many of us already have. Since luning is established on the behavior of AI and their actions refine, users will employ it as purchasing agents, giving them the authorization to use credit on behalf of the user. On the bank side, business operations on the decision to expand credit or not be instructed to AIS. This AIS will assess creditworthiness and make an assessment to create a loan or authorize a credit purchase. The combination of millions of such decisions will make a great influence on the expansion or contraction of the money supply. This is likely to occur only in the ‘Shadow Banking’ part of the economy – light regulated fintech businesses experimenting with new forms of credit creation – which are beyond the direct lead of the Federal Reserve. The Genius Act, which passed the Senate last week, makes these events even easier to see. The law would formalize the StableCoin industry. StableCoin is a Treasury-backed cryptocoin that allows transactions to move to the blockchain, a decentralized digital ledger outside the traditional banking sector. Companies such as Amazon and Walmart threw their hats in the ring to create their own stableecoins and drop the traditional banking system in all transactions. With these elements in place, the Federal Reserve will face the problem of an AI purchase agent talking to an AI credit agent, with the only limitation that they are the underlying code that determines their behavior and the instructions that users give them. Furthermore, these two agents can make transactions using a lightly regulated form of currencies that are regulated and not moved through the traditional banking system. As these interactions would take place in the shadow banking sector, the Fed will not see first movements where the money supply expands or contracts, one of the most important things that central bankers must observe to do their work correctly and lead the economy. And if AIS makes financial decisions, how can anyone be sure that they will respond to Fed policy in the same way as our historical data say that people respond to Fed policy? There are possible solutions for private sectors to mitigate some of these, such as insurance issued on the behavior of AIS decisions. But if the Fed does not have a clear image of money creation through AIS or a direct way to intercede AIS’s ability to change the money supply, it is a world of problems in an AI-driven economy. The Fed must address it sooner rather than later. If the genius act becomes law, it will only make the problem more urgent. The rate at which personal AI products are rolled out indicates that this reality is approaching quickly. If the Fed does not have clarity on these innovative areas of the Shadow Banking sector and a playbook to deal with AI money creation, it will make the depth of this problem fully realize to do something about it. Mr. Horstmeyer is a professor of finance at George Mason University. Catch all the technological news and updates on live currency. Download the Mint News app to get daily market updates and live business news. More Topics #federale Reserve #Kartic Intelligence #US Federal Reserve #AI Read next story
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