TECH & INFRASTRUCTURE

Is Traditional Banking Always The Answer? Bog Butter to Preserve Wealth While technology has encouraged banking to adapt and offer new services, traditionally banks have been physical presences that offer conventional financial services such as savings accounts, loans, etc. Traditional banking has obviously not always been the answer; for instance, in Ireland it is theorized that people may have used bogs to protect their wealth. Every year, people in Ireland dig up peat moss and so it is quite usual for them to find butter in the bogs (Daley). Butter during the Iron Age was valuable and could be used to pay taxes or rent so it was important that it was protected. While there could have been other motivators such as preservation or ritual, the fact remains that people do not always use traditional banking structures to manage their wealth (Penn-Romine). Instead, people may use alternative methods which are accessible to them- the collapse of the traditional banking system in Lebanon, for instance, prompted people to use other methods. Exclusion from Traditional Banks While people may no longer have bog butter, this does not mean they do not use alternative measures to preserve their money. For example, in 2016 when India decided to demonetize all ₹500 and ₹1,000 banknotes, it was revealed that many housewives had secret savings that they didn’t deposit in the banks (BBC). Culturally, managing the accounts is seen to be reserved for the men in India. Hence, when 80% of Indian women don’t have bank accounts and most don’t have access to reliable information about the banking system, they need to turn to other ways to manage their wealth as traditionally banking is not accessible to them (Doshi). Therefore, while traditional banking may often be what people turn to, it is not always available as a reasonable choice. Collapse of Traditional Banking: Al-Qard al-Hassan in Lebanon Al-Qard al-Hassan (AQAH) has risen in relevance since the economic crisis in Lebanon. After 2019, banks have limited cash withdrawals and it has become difficult for people to access their money (Geldi). As a result, many have turned to AQAH- despite its initial audience being the Shiite population, Hezbollah has since encouraged all Lebanese citizens to use AQAH (Reuters and TOI). As traditional banks are no longer a realistic option, AQAH is much more attractive as it allows users to withdraw cash (Mishra). AQAH is not part of the international banking system and faces sanctions from the US for working with Hezbollah which has been labeled as a terrorist organization by many countries (Gritten and Lukiv). Nevertheless, people have turned to AQAH despite the sanctions it faces. AQAH has continued to operate when other banks have collapsed, and the lack of options mean that people would be hard-pressed to not utilize the one resource they have. Citizen’s lives have not stopped moving despite the economic crisis and they need loans to pay for education and to start their businesses and AQAH enables them to do so. The bank operates on the principles of Islamic finance and mainly offers interest free loans backed by deposits of gold or other valuables (Baker). As the majority of Lebanon’s population is Muslim, it is helpful that AQAH operates in a way that complies with their religious requirements. Moreover, while traditional banking may have been the norm at one point in Lebanon and may again resume that position at some point, it is not a reasonable choice for most people currently. The banking system has collapsed but life still goes on and so non-traditional banking has to be the answer to fill the void that has been created. Microloans For Economic Empowerment Another instance of when traditional banking has not been the answer builds upon our earlier discussion of exclusion from traditional banking. Microfinance in India is targeted towards women in order to economically empower them. Here it is not so much the exclusion from traditional banking that presents the primary problem, but rather the fact that traditional banking simply is not compatible with the reality of their situations. Those living in poverty are unlikely to have employment or collateral to use for a loan and banks are unwilling to grant them due to the high risk and transaction costs attached. Hence, microfinance is presented as an attractive alternative to local money-lenders who have high interest rates. Further, India has a large rural population, and microfinance is a tool that can be used to promote development at a grassroots level (Sonakia). These small loans are helpful in allowing women to set up small businesses, but they can also be used for consumption purposes like weddings or medicine. While microfinancing has been set up with the best of intentions to increase female entrepreneurship and financial independence for impoverished women in rural areas, there are also instances of harassment against women, high interest rates, and debt traps (Jaswal). It is also not as generous as it could be as the risk to the lenders still needs to be weighed. As a result, those below the poverty line cannot reap the benefits of these schemes, and limited regulation means that some institutions charge high interest rates or transaction costs (Sonakia). In this situation, while non-traditional banking is what is accessible for impoverished women in rural areas, it has also led to debt traps with women being harassed by creditors (France 24). This is not an ideal situation and does not assist in empowering these women. However, seeing as how traditional banking is simply not an option for most of these women, non-traditional methods must be utilized. Microfinance has the right idea in what they are doing, it is simply that the operation of it has had negative consequences. This could be likened to AQAH as while it may be the only option for Lebanese citizens, AQAH also allegedly illicitly moves funds which could increase sanctions on Lebanese institutions. Therefore, while it is an accessible option for Lebanese citizens, the way the bank operates means that it …

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Alleged Competitive Disadvantage of the EU AI Act The European Parliament has approved the AI Act which is a comprehensive framework that attempts to address the risks that AI presents. While countries like the US and China have made some attempt at regulating AI, the EU’s AI Act goes further and is the world’s first set of binding requirements to mitigate AI risk. Enza Iannopolla, principal analyst at Forrester, believes that this would make the EU the standard for trustworthy AI and other countries would attempt to reach the same level (McCallum et al.). An important consideration for the EU is that while this legislation may be the leading of its kind, the US- followed by China- dominates when it comes to AI. While these regulations may promote trustworthy AI, there is also the risk that it would limit the creation of AI in Europe. The AI Act could create a competitive disadvantage for Europe as companies may be more inclined to develop in regions with less strict regulations and the regulations could limit European companies (Ditsche and Mikhaylenko). On the other hand, the regulations could also aid in increasing Europe’s soft power as the AI Act requires companies with generative AI tools to disclose the material they use to train their AIs (McCallum and Vallance). AI has gotten a bad reputation for using copyrighted material and the Act could improve the perception of AI amongst artists and generate goodwill towards the EU for tackling the problem. Leader in AI Regulation The EU wants to promote trustworthy AI and the AI Act allows them to do so while also placing themselves in an influential position which could generate AI activity in Europe. Regulating AI is not a new concept, although its implementation has been slow. For instance, in April, the UK and the US signed a Memorandum of Understanding in order to work together to test advanced AIs (UK Gov). The largest AI firms are cooperating with the idea of regulation, but the fact remains that till now regulators have not implemented any significant restrictions on the companies’ goals or asked for the data they use to train their AI (McMahon and Kleinman). The AI Act is meant to establish the EU as a leader at the forefront of AI, and it is succeeding as countries like the UK are recognizing the advancements the EU is making. This could be a sore point for the UK; they currently have more funding in AI safety than any other government but they have been overtaken by the EU for risk mitigation regulation (Vallance). Post-Brexit tensions still exist and considering a large motivator of leaving the EU was the ability to take back control, there may be pressure internally for the government to show that they are capable of outperforming the EU. The government wants to use their newfound freedom and create policy, but unless this is exercised in a way that places the UK in a comparable position to the EU when it comes to AI regulation, then perhaps the benefits of Brexit are not to be found in this area (Marshall and Goss). There was a study that showed that regions who were early in creating ideas in new scientific fields, had an innovation advantage in those fields over time. The study covered fields like AI, and found that the EU was significantly behind the US in terms of their innovation advantage (Filimonovic et al.) Considering the study set out that early leaders in scientific innovation had an advantage in technological innovation, it would perhaps take more than was reasonable for the EU to catch up to the US in the traditional way. By focusing on risk mitigation regulation, the EU is using considerably less resources and taking an unconventional route to lead the market. World’s Unicorn Capital The US is leading the field when it comes to AI and the EU is attempting to level it by introducing the AI Act. There are those who believe that the AI act will limit the EU’s advancement and place them at a competitive disadvantage. However, it needs to be kept in mind that the US is also attempting to regulate AIs. For instance, President Biden declared an executive order requiring data sharing from AI developers to the government (McCallum et al.). Senator Wiener in California even authored a bill that would introduce AI regulations but it faced opposition from tech companies and was blocked by Governor Newsom as he believed that it would reduce innovation and developers may move out of the state (Silva). These criticisms are the same as those that the EU AI Act has received, and they are not completely unfounded. For instance, OpenAI CEO Altman initially made threats on leaving the EU due to the planning of the AI Act as he believed it would be overregulation (McCallum and Vallance). Nevertheless, regulation is important especially considering what AI is capable of. For example, OpenAI has developed a voice cloning tool but made a decision not to release it due to the risks that it presents, particularly in election years. In fact, in January this year, a fake AI-generated robocall purportedly from President Biden asked voters to skip a primary election (McMahon and Kleinman). This may be why Governor Newsom has been signing other bills focusing on misinformation and deep fakes- his blocking of the AI safety bill did not mean that he does not understand the risks that AI presents (Silva). In conclusion, the EU’s AI Act may place them at a competitive disadvantage due to the regulations it enforces on AI developers, but it is clear that other countries have similar worries over the risks involved with AI. While others may be slower to regulate due to the concerns over hindering innovation, they will eventually need to and it could be beneficial to the EU to have a framework prepared and not be in a situation where the aforementioned risks do materialize and they can only legislate …

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