The Bank for International Settlements (BIS) has urged central banks to embrace artificial intelligence (AI) to mitigate economic and financial risks. In a pre-released chapter of its upcoming Annual Economic Report for 2024, the BIS highlighted the potential impact of AI on inflation trends and emphasized the need for policymakers to integrate AI into their operations to enhance financial and price stability.
Cecilia Skingsley, the head of BIS Innovation Hub, mentioned that central banks have been early adopters of machine learning and are well-positioned to leverage AI’s ability to analyze vast amounts of data effectively. Projects like Aurora, focusing on detecting money laundering, and Raven, enhancing cyber resilience, showcase the practical applications of AI in the financial sector.
The full BIS Annual Economic Report 2024, along with the BIS Annual Report 2023/24, is set to be released on June 30, providing further insights into the implications of AI for central banks.
AI can offer various benefits to central banks, such as improving lending and payment processes, but it also introduces risks like sophisticated cyberattacks. The report emphasizes the significance of data in the AI revolution and calls for increased collaboration among central banks to navigate these challenges effectively.
Hyun Song Shin, the head of research and economic advisor at BIS, highlighted the role of AI in providing faster and more accurate information for central banks to detect patterns and risks in the economy and financial system. By leveraging AI for nowcasting and identifying vulnerabilities in the financial system, central banks can enhance their risk management capabilities.
Moreover, AI’s broader implications on labor markets, productivity, and economic growth were discussed in the report. AI’s impact on firms’ ability to adjust prices in response to macroeconomic changes can influence inflation trends. The report also emphasized the importance of displaced workers finding new jobs quickly and households and firms correctly anticipating future gains from AI to manage demand and inflationary pressures effectively.
In the financial sector, AI is expected to enhance efficiencies and reduce costs in various areas like payments, lending, insurance, and asset management. However, the report warned about new risks introduced by AI, including novel cyberattacks, and the amplification of existing risks like herding, runs, and fire sales.
Overall, the BIS’s call for central banks to adopt AI underscores the importance of leveraging technological advancements to navigate the evolving economic and financial landscape effectively. By embracing AI, central banks can enhance their capabilities in risk management, data analysis, and decision-making to ensure financial stability and economic resilience in the digital age.