BIS on AI and its impact on central banks and economy

The Bank for International Settlements (BIS) emphasized the need for central banks to embrace artificial intelligence (AI) in anticipation of its transformative effects on the economy and financial system. According to the BIS Annual Economic Report 2024, AI is set to significantly impact labor markets, productivity, and economic growth. Central banks, as frontline users of AI tools, can leverage the technology to enhance nowcasting by using real-time data to predict inflation and other economic variables, and to identify financial system vulnerabilities. The increased importance of data, driven by the AI revolution, necessitates greater cooperation among central banks to manage these changes effectively. Widespread AI adoption could also influence inflation dynamics, with firms potentially adjusting prices faster in response to macroeconomic changes

In the financial sector, AI promises efficiencies and cost reductions in payments, lending, insurance, and asset management, but it also introduces risks like sophisticated cyber attacks and the amplification of existing vulnerabilities such as herding and market runs. The BIS Innovation Hub is actively testing AI capabilities in collaboration with central bank partners to explore its potential benefits and mitigate associated risks. The rapid integration of AI into various sectors underscores the need for central banks to adapt and utilize AI to maintain financial and price stability, while remaining vigilant to its implications for the economy.