Central Banks Need to “Raise Their Game” as AI Gains Steam, BIS Says

Central banks must “raise their game” by enhancing artificial intelligence (AI) integration as they discharge their duties, according to a recent report published by the Bank of International Settlements (BIS).

The organization's annual report emphasizes that central banks need to proactively adapt to progressing AI technologies to effectively fulfill their mandate of maintaining price and financial stability.

According to the BIS, AI's integration into various sectors is set to influence central banks in two primary ways.

Firstly, AI will affect central banks' core responsibilities related to economic stewardship. For example, the BIS notes that AI is impacting financial systems, as well as various markets, from productivity and consumption to investment and labor; these in turn affect price and financial stability, both of which are key areas of focus for central banks.

There are also implications for inflation — firms that use AI may be able to adjust prices more quickly on the back of macro changes. "These developments are therefore of paramount concern to central banks," the BIS explains.

Secondly, the report states that AI will change how central banks operate via its impact on the financial system.

This is because financial institutions, including commercial banks, are increasingly utilizing AI tools for various functions, such as risk management, fraud detection and customer service enhancements.

"Overall, the rapid and widespread adoption of AI implies that there is an urgent need for central banks to raise their game. 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," explains the BIS.

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Securities Disclosure: I, Giann Liguid, hold no direct investment interest in any company mentioned in this article.