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Artificial intelligence in central banking: benefits and risks of AI for central banks

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  • Ozili, Peterson K

Abstract

Artificial intelligence (AI) is a topic of interest in the finance literature. However, its role and implications for central banks have not received much attention in the literature. Using discourse analysis method, this article identifies the benefits and risks of artificial intelligence in central banking. The benefits of artificial intelligence for central banks are that deploying artificial intelligence systems will encourage central banks to develop information technology (IT) and data science capabilities, it will assist central banks in detecting financial stability risks, it will aid the search for granular micro economic/non-economic data from the internet so that the data can support central banks in making policy decisions, it enables the use of AI-generated synthetic data, and it enables task automation in central banking operations. However, the use of artificial intelligence in central banking poses some risks which include data privacy risk, the risk that using synthetic data could lead to false positives, high risk of embedded bias, difficulty of central banks to explain AI-based policy decisions, and cybersecurity risk. The article also offers some considerations for responsible use of artificial intelligence in central banking.

Suggested Citation

  • Ozili, Peterson K, 2024. "Artificial intelligence in central banking: benefits and risks of AI for central banks," MPRA Paper 120151, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:120151
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    File URL: https://mpra.ub.uni-muenchen.de/120151/1/MPRA_paper_120151.pdf
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    References listed on IDEAS

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    1. Goodell, John W. & Kumar, Satish & Lim, Weng Marc & Pattnaik, Debidutta, 2021. "Artificial intelligence and machine learning in finance: Identifying foundations, themes, and research clusters from bibliometric analysis," Journal of Behavioral and Experimental Finance, Elsevier, vol. 32(C).
    2. Alan S. Blinder, 2010. "How Central Should the Central Bank Be?," Journal of Economic Literature, American Economic Association, vol. 48(1), pages 123-133, March.
    3. John P. Jackson & Mark J. Manning, 2007. "Central Bank intraday collateral policy and implications for tiering in rtgs payment systems," DNB Working Papers 129, Netherlands Central Bank, Research Department.
    4. Sheila Dow, 2019. "Monetary Reform, Central Banks, and Digital Currencies," International Journal of Political Economy, Taylor & Francis Journals, vol. 48(2), pages 153-173, April.
    5. Alan S. Blinder, 2010. "How Central Should the Central Bank Be?," Journal of Economic Literature, American Economic Association, vol. 48(1), pages 123-133, March.
    6. Goodhart, C. A. E., 2011. "The changing role of central banks," Financial History Review, Cambridge University Press, vol. 18(2), pages 135-154, August.
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    Keywords

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    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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