BIS Urges Central Banks to Keep Pace with AI

The Bank of International Settlements (BIS) has called on central banks to address the challenges and opportunities of AI to keep pace as it becomes more integrated into the mainstream.

A preview chapter from the BIS Annual Economic Report 2024 encouraged global financial authorities to prepare for the transformative effects that AI could have on the economy.

According to BIS, central banks can leverage AI to improve nowcasting as the use of real-time data creates more accurate predictions of inflation and other economic variables.

It added AI can also help central banks sift through data to identify vulnerabilities in their financial systems, which enables authorities to enhance risk management.

As widespread adoption of AI continues, it could also enable firms to adjust prices faster in response to macroeconomic changes with repercussions for inflation dynamics, BIS said.

The report also found that automation of routine tasks ranked as the most significant benefit of the implementation of AI in cyber security, closely followed by improved response times.

Hyun Song Shin, head of research and economic adviser at the BIS, said:  “Vast amounts of data could provide us with faster and richer information to detect patterns and latent risks in the economy and financial system. All this could help central banks predict and steer the economy better.”

While BIS highlighted the benefits of AI, it also cautioned about associated risks, such as new types of cyber attacks and the potential amplification of existing ones, like herding, runs and fire sales.

Despite the risks, the report revealed 75% of respondents either “completely agree” or “partially agree” that generative AI is expected to bring more benefits than risks.