BIS urges central banks to adopt AI for financial and price stability

Central banks should adopt artificial intelligence and use it to sharpen their own analytical tools in pursuit of financial and price stability, the Bank for International Settlements (BIS) said. 

AI is poised to impact the financial system, labour markets, productivity and economic growth, the BIS Annual Economic Report 2024 said in a special chapter, adding that it could enhance firms’ ability to adjust prices faster in response to macroeconomic changes with repercussions for inflation dynamics. 

The job of central banks as stewards of the economy will also be directly affected as frontline users of AI tools, the report said. 

Central bank use cases for AI include enhancing nowcasting by using real-time data to better predict inflation and other economic variables and to sift through data for financial system vulnerabilities, allowing authorities to better manage risks, the report added. 

Data have become an even more valuable resource with the advent of AI and will be the cornerstone of central banks’ use of the technology, it said. 

“New-generation AI models have captured our collective imagination through their uncanny abilities, but they also have a direct bearing on how central banks do their jobs. 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,” Hyun Song Shin, head of research and economic adviser at the BIS, said. 

The report noted that 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. 

In the short-run, supply could outstrip demand, which could lower pressures but those effects could reverse over time as demand also catches up through higher incomes. Central banks will need to stay attuned to these dynamics in their monetary policy, the report said. 

In the financial sector, AI can improve efficiencies and lower costs for payments, lending, insurance and asset management, the report said. The BIS cautioned that AI also introduces risks, such as new types of cyberattacks, and may amplify existing ones, such as herding, runs and fire sales, it added.

Cecilia Skingsley, who heads the BIS Innovation Hub that is testing AI’s capabilities in several areas together with central bank partners, said central banks are well positioned to make the most of AI’s ability to impose structure on vast troves of unstructured data.

For example, she said, Project Aurora explores how to detect money laundering activities from payments data and Project Raven uses AI to enhance cyber resilience, to mention just two from our portfolio.