Rome, July 7, 2024 – Piero Cipollone, Member of the Executive Board of the European Central Bank (ECB), delivered a keynote speech at the National Conference of Statistics, highlighting the transformative potential of artificial intelligence (AI) from a central bank’s perspective. His address covered the rapid evolution of AI, its economic impact, and the necessary safeguards for its responsible use.
The Evolution of AI and Its Adoption
“We are witnessing extraordinary advances in AI,” Cipollone began. He pointed out the shift from analytical models to generative AI, which has driven significant adoption across industries. According to a recent survey, nearly three-quarters of organizations have integrated AI into their operations, with two-thirds utilizing generative AI. Despite this, only 8% have applied AI across multiple business functions, indicating the nascent stage of widespread AI integration.
AI: A General-Purpose Technology
Cipollone drew parallels between AI and historical technological advancements such as the steam engine and electricity, describing AI as a general-purpose technology with the potential to transform economies. However, he cautioned that AI might mirror the Solow paradox, where the benefits of new technology are not immediately reflected in productivity statistics.
AI’s Role at the ECB
At the ECB, AI is already making significant strides in enhancing various functions, from economic modeling to market operations. Cipollone highlighted, “Despite significant ICT investments, broader productivity gains have been concentrated in the tech sector. AI’s value might similarly be captured by a few dominant players, restricting widespread economic benefits.”
Economic Impact and Productivity
The potential of AI to boost productivity is undeniable. Studies have shown significant productivity gains at the firm level, though aggregate effects vary. Rapid and widespread AI adoption across sectors is crucial for realizing these gains. However, the concentration of AI-driven value in a few companies poses a risk, similar to the IT sector’s evolution, where benefits were primarily reaped by a handful of firms.
Labor Market Implications
AI’s impact on the labor market is complex, with the potential to both substitute and complement labor. ECB analysis indicates that approximately 25% of jobs in Europe are highly exposed to AI-enabled automation, with another 30% moderately exposed. “Ensuring workers acquire complementary skills is essential to mitigate AI’s disruptive potential,” Cipollone emphasized.
Financial Stability and AI
While AI can enhance financial stability through efficient risk assessments and liquidity planning, it also introduces risks such as operational vulnerabilities and systemic risks. The ECB is closely monitoring these developments to safeguard financial stability.
Monetary Policy and AI
AI could influence cost pressures and monetary policy transmission. By increasing productivity, AI might reduce prices and mitigate labor shortages. Conversely, higher computational demands could drive up energy costs. AI’s impact on financial structures could further affect monetary policy efficacy.
Practical Applications at the ECB
AI is enhancing various tasks within the ECB. For example, AI improves statistical processes by analyzing vast datasets more efficiently. Large language models (LLMs) unlock new data sources, complementing traditional data collections. “AI enables real-time analysis of economic indicators, aiding timely policy decisions, particularly in times of crisis,” Cipollone noted.
Communication and AI
AI is revolutionizing central bank communication by analyzing vast volumes of media and market commentary, ensuring policy decisions are well understood. AI-powered translation helps the ECB communicate in all 24 official EU languages, broadening its reach and enhancing public understanding.
Market Infrastructures and Payments
AI-driven innovations in market infrastructures and payments are creating customized services and improving financial inclusion. Additionally, AI enhances the oversight of payment systems, identifying risks before they materialize.
Safeguarding AI’s Use
Cipollone stressed the importance of ensuring confidentiality, privacy, and ethical use of AI. The ECB’s AI action plan emphasizes developing safe and responsible AI tools, fostering AI skills, and maintaining human oversight to prevent over-reliance on AI.
Conclusion
ECB’s Piero Cipollone on the Transformative Potential of AI in Central Banking
Rome, July 4, 2024 – Piero Cipollone, Member of the Executive Board of the European Central Bank (ECB), delivered a keynote speech at the National Conference of Statistics, highlighting the transformative potential of artificial intelligence (AI) from a central bank’s perspective. His address covered the rapid evolution of AI, its economic impact, and the necessary safeguards for its responsible use.
The Evolution of AI and Its Adoption
“We are witnessing extraordinary advances in AI,” Cipollone began. He pointed out the shift from analytical models to generative AI, which has driven significant adoption across industries. According to a recent survey, nearly three-quarters of organizations have integrated AI into their operations, with two-thirds utilizing generative AI. Despite this, only 8% have applied AI across multiple business functions, indicating the nascent stage of widespread AI integration.
AI: A General-Purpose Technology
Cipollone drew parallels between AI and historical technological advancements such as the steam engine and electricity, describing AI as a general-purpose technology with the potential to transform economies. However, he cautioned that AI might mirror the Solow paradox, where the benefits of new technology are not immediately reflected in productivity statistics.
AI’s Role at the ECB
At the ECB, AI is already making significant strides in enhancing various functions, from economic modeling to market operations. Cipollone highlighted, “Despite significant ICT investments, broader productivity gains have been concentrated in the tech sector. AI’s value might similarly be captured by a few dominant players, restricting widespread economic benefits.”
Economic Impact and Productivity
The potential of AI to boost productivity is undeniable. Studies have shown significant productivity gains at the firm level, though aggregate effects vary. Rapid and widespread AI adoption across sectors is crucial for realizing these gains. However, the concentration of AI-driven value in a few companies poses a risk, similar to the IT sector’s evolution, where benefits were primarily reaped by a handful of firms.
Labor Market Implications
AI’s impact on the labor market is complex, with the potential to both substitute and complement labor. ECB analysis indicates that approximately 25% of jobs in Europe are highly exposed to AI-enabled automation, with another 30% moderately exposed. “Ensuring workers acquire complementary skills is essential to mitigate AI’s disruptive potential,” Cipollone emphasized.
Financial Stability and AI
While AI can enhance financial stability through efficient risk assessments and liquidity planning, it also introduces risks such as operational vulnerabilities and systemic risks. The ECB is closely monitoring these developments to safeguard financial stability.
Monetary Policy and AI
AI could influence cost pressures and monetary policy transmission. By increasing productivity, AI might reduce prices and mitigate labor shortages. Conversely, higher computational demands could drive up energy costs. AI’s impact on financial structures could further affect monetary policy efficacy.
Practical Applications at the ECB
AI is enhancing various tasks within the ECB. For example, AI improves statistical processes by analyzing vast datasets more efficiently. Large language models (LLMs) unlock new data sources, complementing traditional data collections. “AI enables real-time analysis of economic indicators, aiding timely policy decisions, particularly in times of crisis,” Cipollone noted.
Communication and AI
AI is revolutionizing central bank communication by analyzing vast volumes of media and market commentary, ensuring policy decisions are well understood. AI-powered translation helps the ECB communicate in all 24 official EU languages, broadening its reach and enhancing public understanding.
Market Infrastructures and Payments
AI-driven innovations in market infrastructures and payments are creating customized services and improving financial inclusion. Additionally, AI enhances the oversight of payment systems, identifying risks before they materialize.
Safeguarding AI’s Use
Cipollone stressed the importance of ensuring confidentiality, privacy, and ethical use of AI. The ECB’s AI action plan emphasizes developing safe and responsible AI tools, fostering AI skills, and maintaining human oversight to prevent over-reliance on AI.
Conclusion
“As we integrate AI into our processes, maintaining human judgment and critical thinking is essential to preserving trust in our data, decisions, and the broader financial system,” Cipollone concluded. Balancing AI’s potential benefits with its risks is essential. Realizing AI’s full potential requires an ecosystem that promotes competition, ensures fair productivity gains, and upholds robust regulatory and ethical standards. For central banks, AI offers innovation opportunities but necessitates stringent safeguards to maintain trust and stability.
“As we integrate AI into our processes, maintaining human judgment and critical thinking is essential to preserving trust in our data, decisions, and the broader financial system,” Cipollone concluded. Balancing AI’s potential benefits with its risks is essential. Realizing AI’s full potential requires an ecosystem that promotes competition, ensures fair productivity gains, and upholds robust regulatory and ethical standards. For central banks, AI offers innovation opportunities but necessitates stringent safeguards to maintain trust and stability.