It is that brain-like wiring which has given rise to thinking, as well as doing, machines – the move from Artificial Intelligence (AI) to Artificial General Intelligence (AGI). In the words of Brynjolfsson and McAfee, we are entering a second machine age. 48 Moreover, Moore’s Law means that the processing power of the machine brain is ever-rising. That leads to the intriguing possibility that, at some point in the future, the processing power of the machine brain could exceed the human brain. Back in 1958, John von Neumann – perhaps the father of modern computing – called such an event the “singularity”. 49 There has since been considerable speculation about its likelihood. Computer processing speeds have reached around 10^16 calculations per  44  Syverson (2013). 45  McAfee and Brynjolfsson (2014). 46  For example, Chui et al (2010), Mokyr (2014). 47  Arthur (2011). 48  Brynjolfsson and McAfee (2014). 49  See Stanislaw (1958). 10  BIS central bankers’ speeches  second. 50 That still falls well short of the brain’s computational capacity. But if Moore’s Law continues, the machine brain could match the human brain within decades. 51 Were the singularity to be reached, the sky becomes the limit innovation-wise. Machine, rather than man, then becomes the mother of all invention. With exponential rises in processing power, the economy could become “super-intelligent”. And with close to zero marginal costs to expanding processing capacity, it may also become “super-efficient”. This would indeed be a fourth industrial revolution.

Negative surprises in these markets might amplify shocks and impair the functioning of key markets, potentially even affecting the financing of the real economy. The surge in volatility witnessed last February illustrates this point. Central bank policies are affected by this scenario in at least two dimensions. First, it makes more challenging the definition of an adequate monetary policy normalisation path. A too-rapid adjustment of monetary policy could trigger the materialisation of some of the risks mentioned. A too-gradual adjustment may ultimately force policy to be tightened more rapidly to contain overheating, thus giving rise to the “snap-back” scenario. By the same token, the persistence of very easy financial conditions and very low volatility extends the “search for yield” behaviour of investors and the build-up of vulnerabilities in the financial system. In this regard, effective communication by central banks throughout the monetary normalisation process will be key to helping anchor financial conditions, despite the threat of heightened volatility. Second, in this complex environment, it is particularly important to emphasise the role played by one of the major policy innovations generated during the financial crisis, namely the development of macroprudential policy frameworks. The proper and timely use of the new macroprudential tools, together with the regulatory and supervisory overhaul of the global banking system undertaken in recent years, should help to contain the build-up of financial imbalances. However, given its novelty it’s difficult to know ex-ante how effective these new macroprudential tools will be. In addition, multiple new challenges remain and need to be dealt with.