Central banks around the world are increasingly embracing the use of artificial intelligence (AI) tools, despite the inherent risks associated with this emerging technology. A recent report by the Bank for International Settlements (BIS) titled “Artificial intelligence in central banking” highlights both the benefits and potential drawbacks of using AI in central banking operations.
One of the primary applications of AI in central banking is in information collection and data analysis. With the complexity and volume of modern data, AI models can efficiently collect, clean, and match information to existing sources, alleviating the need for human effort. Neural networks and random forest models enable central banks to access real-time data for inflation expectations and gauge the effectiveness of monetary policies through the analysis of social media posts.
Additionally, AI systems are being deployed for oversight and supervision of payment systems, helping central banks identify irregular financial transactions that could indicate money laundering or cyberattacks. For example, the Central Bank of Brazil has developed a classification model called ADAM to predict borrowers likely to default on their loans. AI is also being used to forecast consumer behavior in response to the introduction of central bank digital currencies.
However, the use of AI in central banking comes with its own set of risks. There is the possibility of biased outputs resulting from the data sets used to train the AI models. Generative AI models also face challenges in producing accurate and reliable outputs without human supervision. Moreover, central banks will need to invest in developing the AI skills of their staff, which may pose a challenge in attracting and retaining talent due to competition from private financial firms offering higher salaries.
To ensure the responsible and effective use of AI, it is crucial for central banks to integrate an enterprise blockchain system. This will ensure data input quality and ownership, safeguarding data while guaranteeing its immutability. By embracing this emerging technology, central banks can navigate the challenges and capitalize on the benefits that AI brings to their operations.