The Bank for International Settlements (BIS) has urged central banks to embrace artificial intelligence (AI) due to its significant impact on the economy and financial system.
In a pre-released chapter of its upcoming Annual Economic Report for 2024, the BIS emphasized the potential effects of AI on inflation trends and advised policymakers to integrate AI into their operations to enhance financial and price stability.
The BIS Innovation Hub, led by Cecilia Skingsley, is actively testing AI’s capabilities in collaboration with central bank partners, exploring projects like detecting money laundering and enhancing cyber resilience.
The full BIS Annual Economic Report 2024 and the BIS Annual Report 2023/24 will be released on June 30.
Central Banking and AI
The BIS’s Annual Economic Report 2024 examines the implications of AI applications for central banks, highlighting benefits in lending and payments, as well as risks like cyberattacks. The report stresses the importance of data in the AI revolution and the need for collaboration among central banks.
BIS’s head of research, Hyun Song Shin, stated that AI models can help central banks detect risks in the economy and financial system by analyzing vast amounts of data. While AI can improve nowcasting and risk management, the final decisions must still be made by humans.
Economic Implications
The report also discusses AI’s broader impact on labor markets, productivity, and economic growth. AI could affect inflation trends by enabling firms to adjust prices quickly in response to macroeconomic changes. The BIS highlighted the importance of how quickly displaced workers find new jobs and how households and firms anticipate gains from AI.
In the financial sector, AI is expected to enhance efficiency and decrease costs in various areas like payments and lending. However, AI introduces new risks like cyberattacks and may amplify existing risks in the financial system.
