Briefing at a Glance

  • Federal Reserve Chairman Kevin Warsh, testifying before the Senate committee, said that while the United States maintains its lead in artificial intelligence, it is competing with China for AI dominance, and American banks need to be vigilant against the possibility that emerging technologies could be used in attacks against them.
  • "They are our 'peer competitor,'" Warsh told the Senate Banking Committee, referring to China. "The AI race is part of a proxy contest between these two economies for meaning and influence over the next decade," he said.
  • "We are at the forefront of these technologies, but I don't want to appear complacent," Warsh said, noting that "like all technologies, they can be used by friends or adversaries."

In-Depth Analysis

In his first testimony before the Senate panel as Fed leader, Warsh said the central bank needs to emphasize to American banks the threat posed by adversaries' deployment of AI.

"If there is one issue I have focused on in this regard in my first seven weeks in office, it is ensuring that the institutions we regulate, as well as the Fed itself, are aware of our vulnerabilities in facing AI-enabled attacks," he said. "I think we still have work to do in this area."

Since 2022, Warsh has been publicly warning U.S. policymakers about economic threats from China.

In a November 2022 op-ed in The Wall Street Journal, Warsh said China's creation of a digital form of its currency "threatens the dollar's dominance and U.S. hegemony."

The digital yuan (e-CNY), a digital currency launched by the People's Bank of China in April 2020, "is a major technological breakthrough that brings both promise and peril to the U.S.-led global financial system," he said.

"In the hands of a powerful sovereign like China, this new software is an effective way to push the yuan into the ranks of top currencies," Warsh said. He served as a Fed governor from 2006 to 2011 and was a visiting economist at the Hoover Institution when writing the op-ed.

Warsh called on policymakers to "respond by serving the national interest with a strengthened form of the dollar."

To maintain the dollar's preeminent global status, the United States should create a digital dollar used only for wholesale transactions, Warsh said, "noting that existing wholesale payment systems are slow, cumbersome, opaque, and costly."

Warsh told the Senate committee on Tuesday that AI presents both profound benefits and risks to the United States.

"Mr. Chairman, in my adult lifetime, I cannot think of a change that will have a more profound impact on the U.S. and global economy than the surge in AI-related investment and its potential," he said.

Warsh noted that after taking the helm of the central bank seven weeks ago, he announced the creation of a "working group" to focus, as mandated by Congress, on AI's impact on the Fed's goals of price stability and maximum employment.

"I think this is a tremendous opportunity, but not without challenges," Warsh said of AI.

"I think the United States is in an extremely favorable position to be at the forefront and extract more productivity, which should benefit American businesses and workers more than any other country in the world," he said. "Any other country would immediately want to trade places with us."