Will AI Replace Your Bank? BIS Says Not Yet! Let’s Take a Closer Look

AI may not be replacing your bank anytime soon – but the possibility is never zero!

Harnessing AI for Inflation Prediction

Central banks should embrace artificial intelligence (AI) to enhance data monitoring and improve inflation prediction, according to the Bank for International Settlements (BIS). In its recent report, the BIS emphasised that while AI has immense potential, it should not replace human judgement in setting interest rates (Reuters). The need for better inflation forecasting became apparent post-COVID-19 and following Russia’s invasion of Ukraine, events that exposed significant gaps in the Federal Reserve’s and European Central Bank’s abilities to anticipate inflation surges.

Human Oversight Remains Crucial

Cecilia Skingsley, a top BIS official, highlighted the importance of human accountability in monetary policy decisions. Although AI can aid in identifying financial vulnerabilities and analysing data, its tendency to “hallucinate” or produce unreliable results means it should not be solely relied upon for crucial decisions like setting interest rates. The BIS, known as the central bankers’ central bank, is already engaged in eight AI-related projects to explore its potential benefits while maintaining essential human oversight.

AI’s Broad Economic Impact and Risks

As the BIS warns of impending risks when it comes to utilising AI in the financial markets, Pacific Central Banks are more insulated as such due to the lack of prerequisite technology available in the Pacific. Indeed, in Fiji, there is a struggle to move from chequebooks to internet banking as a sole method of transaction due to the lag in technology adoption. Bigwigs in the financial sector can rest assured (for now) that AI will not replace banks – but the possibility is never zero.

Source: Reuters

*An AI tool was used to add an extra layer to the editing process for this story.