Global | Central banks, climate change and the balm of Fierabras

Climate change is multidimensional, with a range of economic risks coming via different channels, both physical and financial, and could ultimately affect the stability of banking systems. It is therefore natural to ask whether central banks should be reassessing their activities and objectives.

Key points

• Key points:
• The debate is well under way, with different positions being taken and nuances contested, even within the European Central Bank (ECB).
• In recent days, its President, Christine Lagarde, argued that inaction is not an option, but that any initiative linked to monetary policy strategy (under review) must be carefully considered before being implemented.
• Referring to a potential break with market neutrality and instead favoring the purchase of environmentally sustainable assets, she indicated that the ECB can contribute to the development of this market by defining eligibility criteria.
• However, favoring sustainable asset purchases in monetary policy operations makes the climate transition dependent on price stability, which is ill-advised given that this process requires predictability and long-term direction.
• Climate change is a shared responsibility, and central banks cannot substitute for crucial policies for the transition to a low-carbon economy, such as raising the cost of emissions.

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