The Bank for International Settlements (BIS) has advised central banks to harness the benefits of AI while cautioning against its use in replacing human decision-makers. In its first comprehensive report on AI, the BIS highlighted the technology's potential to enhance real-time data monitoring and improve inflation predictions -capabilities that have become critical following the unforeseen inflation surges during the COVID-19 pandemic and the Ukraine crisis. While AI models could mitigate future risks, their unproven and sometimes inaccurate nature makes them unsuitable as autonomous rate setters, emphasised Cecilia Skingsley of the BIS. Human accountability remains crucial for decisions on borrowing costs, she noted.

The BIS, often termed the central bank for central banks, is already engaged in eight AI-focused projects to explore the technology's potential. Hyun Song Shin, the BIS's head of research, stressed that AI should not be seen as a 'magical' solution but acknowledged its value in detecting financial system vulnerabilities. However, he also warned of the risks associated with AI, such as new cyber threats and the possibility of exacerbating financial crises if mismanaged.

The widespread adoption of AI could significantly impact labour markets, productivity, and economic growth, with firms potentially adjusting prices more swiftly in response to economic changes, thereby influencing inflation. The BIS has called for the creation of a collaborative community of central banks to share experiences, best practices, and data to navigate the complexities and opportunities presented by AI. That collaboration aims to ensure AI's integration into financial systems is both effective and secure, promoting resilient and responsive economic governance.

In conclusion, the BIS's advisory underscores the importance of balancing AI's promising capabilities with the necessity for human intervention in central banking operations. By fostering an environment for shared knowledge and collaboration among central banks, the BIS seeks to maximise AI benefits while mitigating inherent risks, thereby supporting more robust economic management in the face of technological advancements.