The widespread adoption of artificial intelligence (AI) could have profound implications for inflation dynamics, according to a report published on Tuesday by the Bank for International Settlements (BIS). The financial sector is among the most exposed to the benefits and risks of this emerging technology. So much so that the BIS has deemed it "urgent" for central banks to enhance their capabilities to address these challenges.
The BIS report concludes that AI is well-positioned to influence several critical aspects of the financial system, including labor markets, productivity, and economic growth. A widespread adoption of AI could enable companies to adjust prices more quickly in response to macroeconomic changes, which would have significant repercussions for inflation dynamics. According to the BIS, "the rapid and widespread adoption of AI implies an urgent need for central banks to elevate their capabilities." This means that institutions must improve their capacities both as informed observers of AI's effects and as users of the technology.
The BIS highlights that, as observers, central banks need to anticipate the impact of AI on economic activity, paying special attention to its effects on aggregate supply and demand. Additionally, their role as users requires them to gain experience in incorporating AI and non-traditional data into their own analytical tools to enhance decision-making.
Collaboration and Training in the Use of AI
The BIS also advocates for promoting collaboration and the exchange of experiences among central banks to form a "community of practice." This community would facilitate the sharing of knowledge, data, best practices, and AI tools, helping to reduce the demands on IT infrastructure and human capital.
"Next-generation AI models have captured our collective imagination with their astonishing capabilities, but they also have a direct relationship with how central banks conduct their work," warned Hyun Song Shin, Head of Research and Advisor at the BIS. This observation underscores the importance of central banks not only understanding AI's capabilities but also effectively integrating it into their daily operations. Cecilia Skingsley, Director of the BIS Innovation Hub, noted that central banks were early adopters of machine learning and are well-positioned to maximize AI's ability to structure and analyze large volumes of unstructured data. This capability is crucial for improving the accuracy of economic forecasts and policy formulation.
Furthermore, the BIS emphasizes that the incorporation of AI does not necessarily lead to a reduction in staff within financial institutions. On the contrary, new employment opportunities are likely to emerge in roles related to AI management and compliance, ensuring that the use of technology aligns with regulatory standards. In this context, investing in young and multidisciplinary talent becomes essential to maximize the benefits of AI in the financial sector.
The rapid adoption of AI presents both an opportunity and a challenge for central banks and the financial sector at large. It is crucial for these institutions to adapt quickly and collaborate closely to ensure that AI is implemented in a safe, responsible, and effective manner, enhancing their capabilities and contributing to global economic well-being.
