BIS Urges Central Banks to Integrate AI for Better Economic Management

BIS Urges Central Banks to Integrate AI for Better Economic Management

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The Bank for International Settlements (BIS) has called on central banks to “raise their game” on artificial intelligence (AI) to leverage its benefits for financial and price stability. In a report released on Tuesday, the BIS emphasized the need for central banks to adopt AI to enhance their data monitoring capabilities and improve their predictive analytics for inflation and other economic indicators.

The BIS, often regarded as the central bank for central banks, highlighted that AI could significantly impact the economy and financial system. Through eight experiments, the BIS found that AI can transform many activities, offering profound benefits. For instance, AI could facilitate “nowcasting,” which involves using real-time data to predict inflation and other economic variables. Additionally, AI can help identify financial system vulnerabilities, enabling authorities to manage risks more effectively.

Hyun Song Shin, the BIS’s head of research and economic adviser, stated, “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.”

The report cited a study by Ant Group, showing that programmers using large language models (LLMs) like ChatGPT were 55% more productive. The BIS suggests that AI can boost productivity in tasks requiring cognitive skills, which could help central banks manage the economy more efficiently.

AI’s impact on demand and inflationary pressures will depend on how quickly displaced workers find new jobs and whether households and firms anticipate future gains from AI. In the financial sector, AI can enhance efficiencies and reduce costs in payments, lending, insurance, and asset management.

Despite its benefits, AI also poses risks, including new types of cyber attacks and the potential to amplify existing risks such as herding, runs, and fire sales. The BIS report underscores the need for central banks to upgrade their capabilities both as users and observers of technological advancements.

The report also notes that while AI has developed emergent capabilities, it is not yet able to perform tasks requiring logical reasoning and judgment. Central banks like the Bank of England and the European Central Bank have already started integrating AI into their operations to predict economic growth and summarize banking data.

The Bank of England is using AI to support its predictive capabilities, while the U.S. Federal Reserve is exploring AI applications without yet integrating it into policy work. The European Central Bank has begun using AI to draft briefings, write software code, and translate documents.

As AI continues to evolve, central banks worldwide must embrace these technological advancements to maintain and enhance financial stability and economic growth.

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