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Central Banks Urged to Adapt Rapidly to AI Advances, Says BIS Report

 |  June 25, 2024

The Bank for International Settlements (BIS) has emphasized the urgent need for central banks to elevate their efforts in addressing the transformative impacts of artificial intelligence on global economies and financial systems. This comes from a detailed report published by BIS, highlighting the rapid advancements and potential disruptions brought about by generative AI technologies, such as large language models like ChatGPT.

The report, from the Financial Times, underscores the awareness among global financial authorities about the necessity to keep pace with the innovations driven by AI. According to the BIS, which provides banking services to central banks worldwide, AI is poised to be a “game changer” across various activities, significantly influencing the broader economy and financial landscape.

“There is an urgent need for central banks to raise their game,” the BIS stated, highlighting the critical nature of adapting to AI advancements. Recent studies, such as one by China’s Ant Group, have demonstrated AI’s potential to boost productivity, with findings showing a 55 percent increase in programmer efficiency when assisted by large language models in coding tasks.

However, the implications of AI on inflation remain uncertain. The BIS suggested that AI could either act as a deflationary force by enhancing worker productivity or potentially drive up prices through increased demand.

While the benefits of AI for central bank operations are evident, including improved predictive capabilities and operational efficiency, the BIS report also flagged significant risks. These include the potential for AI to provide incorrect information and its susceptibility to hacking, posing threats to financial stability and security.

Read more: New Report Says AI Regulations Lag Behind Industry Advances

“AI will affect financial systems as well as productivity, consumption, investment, and labor markets, which themselves have direct effects on price and financial stability,” the report noted. To navigate these challenges, the BIS stressed that central banks must enhance their capabilities both as informed observers and active users of AI technology.

Generative AI, trained on extensive datasets, is capable of human-like interactions and unique content creation, offering substantial opportunities for innovation. Many companies have already leveraged AI to gain a competitive edge, particularly within the financial sector. However, central banks have approached AI integration more cautiously, concerned about its reliability, legal implications, and transparency.

The U.S. Federal Reserve has begun exploring AI applications within its operations but remains cautious, refraining from incorporating AI into policy decisions at this stage. The Bank of England has also started using AI to enhance its capabilities, particularly in economic growth predictions, banking sector stress tests, and crisis management.

Recently, The Financial Times reported that the European Central Bank has implemented AI to streamline routine tasks, such as drafting briefings, summarizing banking data, writing software code, and translating documents, indicating a growing acceptance of AI’s utility in central banking functions.