The Role of Artificial Intelligence In Finance: Implications for Financial Stability and Monetary Policy Formulation in Vietnam

Abstract

Artificial Intelligence (AI) is rapidly reshaping the financial industry, bringing innovations that enhance operational efficiency, automation, and predictive accuracy. AI technologies, such as machine learning, are transforming key areas including algorithmic trading, credit risk assessment, fraud detection, and customer service, providing significant benefits to financial institutions. However, the integration of AI into financial systems also introduces critical risks that could undermine financial stability. AI-driven market behavior, such as high-frequency trading, can contribute to increased market volatility, while the reliance on AI for credit assessments could lead to systemic risks if flawed models are widely adopted. Additionally, AI's influence on market dynamics complicates the transmission of monetary policy. Central banks may face challenges in forecasting economic conditions or responding to policy shifts, as AI systems react quickly and unpredictably to economic signals. This paper explores both the advantages and drawbacks of AI in finance, examining its implications for market stability and monetary policy. By analyzing existing research a...