Central Banks Urged to Prepare For Profound Impact of AI, BIS Advocates For AI Integration

The Bank for International Settlements (BIS) has urged central banks to leverage the advantages of artificial intelligence (AI), while emphasizing that human judgment should remain paramount in setting interest rates.

In its inaugural comprehensive report on the swiftly evolving AI landscape, the central banking consortium highlighted the necessity for policymakers to utilize AI’s substantial capabilities to monitor real-time data, thereby enhancing their ability to forecast inflation.

Cecilia Skingsley, a senior BIS official, noted that while new AI models could potentially reduce the likelihood of past forecasting errors, their untested nature and propensity to “hallucinate” render them unsuitable for autonomous interest rate decisions. “We prefer to hold humans accountable,” said Skingsley, a former Swedish central banker, underscoring the critical societal role of borrowing costs and the need for human discernment. “I cannot foresee a future where an AI will be responsible for setting interest rates.”

The BIS, often referred to as the central bank for central banks due to its collaborative efforts, is already engaged in eight AI-related projects. The organization predicts that AI will significantly transform labor markets, influencing productivity and economic growth. Broad adoption of AI could enable companies to adjust prices more swiftly in response to macroeconomic shifts, affecting inflation dynamics.

However, the BIS also warned that AI presents new risks, such as innovative cyberattack methods, and could exacerbate existing vulnerabilities like herding behaviors, bank runs, and rapid sell-offs of financial assets.

Source: CNBC Africa