GREEN CENTRAL BANKING
In the wake of recent financial convulsions, central banks have emerged yet again as the first responders to crisis. But to confront the crisis of anthropogenic climate change, there is growing acknowledgement that central banks should go further, beyond their limited remit of maintaining price stability.
Central banks should be more cognizant of their own role in creating credit-fueled growth; monetary policy already features distributing the benefits and burdens of decarbonization. Crucially, stepping up ambitions for active climate change mitigation would involve abandoning spurious notions of "market neutrality."
In a recent e-book, PATRICK BOLTON , MORGAN DESPRES, LUIZ AWAZU PEREIRA DA SILVA, FRÉDÉRIC SAMAMA, and ROMAIN SVARTZMAN argue that facilitating decarbonization is in fact consistent with concerns over financial and price stability:
"An additional ambitious and controversial proposal is to apply climate-related considerations to central banks’ collateral framework. The goal of this proposal is not that central banks should step out of their traditional role when implementing monetary policies, but rather to recognise that the current implementation of market neutrality, because of its implicit bias in favour of carbon-intensive industries [...] could end up affecting central banks’ very own mandates in the medium to long term. Honohan (2019) argues that central banks’ independence will be more threatened by staying away from greening their interventions than by carefully paying attention to their secondary mandates such as climate change. Thus, and subject to safeguarding the ability to implement monetary policy, a sustainable tilt in the collateral framework could actually contribute to reducing financial risk."
Link to the book.