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The Bank for International Settlements (BIS) called on central banks to “raise their game” on AI and embrace the benefits of the new technology. In a report released on Tuesday, the BIS said policymakers need to harness the power of artificial intelligence to monitor data and sharpen their analytical tools for predicting financial and price stability.
The organization, often called the central bank for central banks due to its collaborative work involving global financial authorities, said it carried out up to eight experiments using AI. It concluded artificial intelligence would likely be “a game changer for many activities and have a profound impact” on the broader economy and financial system.
BIS says AI could help predict inflation
“There is an urgent need for central banks to raise their game,” the BIS said in its report. Adding that recent evidence suggests AI directly raises productivity in tasks that require cognitive skills.
The Basel-based central banking umbrella group pointed to a recent study by Ant Group, the Chinese financial technology company owned by billionaire Jack Ma. The study found that the company’s programmers were 55% more productive when using large language models (LLMs) such as ChatGPT to help with coding.’
One of the major use cases of AI by central banks relates to what the BIS calls “nowcasting” – or using real-time data to predict inflation and other economic variables. AI can also be used to sift through data for financial system vulnerabilities, it said, “allowing authorities to manage risks.”
In a statement, Hyun Song Shin, the BIS’ head of research and economic adviser, commented:
“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 effects on demand and inflationary pressures will depend on how quickly displaced workers can find new jobs, and whether households and firms correctly anticipate future gains from AI, the report said. In the financial sector, artificial intelligence can improve efficiencies and lower costs for payments, lending, insurance and asset management, it added.
For central banks, widespread adoption of AI into their operations could have repercussions for inflation dynamics, according to the BIS. It said that the technology will impact the financial system, labor markets, productivity and economic growth. Increased uptake could boost the ability of companies “to adjust prices faster in response to macro-economic changes”, directly affecting the work of central banks.
🎙️ Data will be the lifeblood of new AI tools used by central banks to monitor the economy and financial system, requiring a rethink of the traditional approach to statistics. @HyunSongShin explains in this #BISness podcast https://t.co/TxmVl6Qt2Y#BISAnnualEconReport pic.twitter.com/katZC0ayQQ
— Bank for International Settlements (@BIS_org) June 25, 2024
AI increases the risk of cyber attacks
The Bank for International Settlements warned that artificial intelligence also introduces risks, such as new types of cyber attacks, and may amplify existing ones, like herding, runs and fire sales.
“To address the new challenges, central banks need to upgrade their capabilities both as informed observers of the effects of technological advancements as well as users of the technology itself,” the report said, adding:
“While it [AI] may be able to perform tasks that require moderate cognitive abilities and even develop ‘emergent’ capabilities, it is not yet able to perform tasks that require logical reasoning and judgment.”
Some central banks have reportedly started to use AI in some of their operations. The Bank of England said earlier this year that it was using AI “to support and enhance” its capabilities to predict economic growth, banking sector distress and financial crises, the Financial Times reports.
The U.S. Federal Reserve is looking into how it could use AI in its work though officials are not interested in its usage in any policy work at the moment. The European Central Bank recently started using AI to draft briefings as well as summarize banking data to write software code and translate documents.
Cryptopolitan Reporting by Jeffrey Gogo