Greener Central Banks: Exploring Possibilities (original) (raw)

Paving the Way for Greener Central Banks. Current Trends and Future Developments around the Globe

Rome, Nuova Cultura, March 2022, 189 p. (IAI Research Studies ; 8), ISBN 978-88-3365-502-4, 2022

Climate change has quickly become one of the most pressing challenges of our society. Financial actors could play a key role in supporting and fostering a shift towards a low-carbon economy. In this context, central banks could have a primary function in both tackling climate-related risks and the ones related to the transition and, potentially, proactively redirecting resources towards green initiatives. Central banks are indeed exploring how different types of climate-related risks and considerations could be incorporated into their activities. However, this effort is proceeding at a different speed and with a different geometry across the globe. This edited volume aims at shedding light on how central banks and international financial institutions are currently addressing climate change worldwide, with a focus on central banks in the European Union, the United States, Asia, Africa and Latin America, and on the potential role of the International Monetary Fund, sovereign national funds and ESG (Environment, Social and Governance) standards.

Fostering Green Economy Through New Financial Instruments in Central Banks’ Portfolios

AGROFOR, 2020

The green economy implies the use of renewable energy from biomass, solar panels, wind power plants and recycled waste, while providing the environmental protection, human well-being and sustainable economic progress. As with other investments, the important question is how to find sufficient sources of funds and get investors interested in these projects. Global green bond issuance started along with the increasing need for financing green businesses and technologies, resolving climate change issues and financing through efficient emission of green securities and trading on markets. The proceeds of these bonds are explicitly used to finance new or existing green projects. This paper examines the concept and evolving of green bonds with emphasis on the new role of central banks in greening financial systems and its impact towards a green economy. The green bond market dates back to 2007, with launching the World Bank Green Bonds programme in 2007 and the Climate Awareness Bonds by t...

Realising Central Banks’ Climate Ambitions Through Financial Stability Mandates

Intereconomics

This paper discusses how financial stability governance has evolved and how central banks and financial regulators are coping with the threats posed by climate uncertainty, providing an overview of G20 countries’ green central banking experiences in the past 20 years. The analysis shows that most central banks realise their climate ambitions through financial stability mandates, leaving the monetary stability mandate unaffected. Considering the debate on market neutrality, the concerns on the risk of overstretching the central banks’ mandate, violation of Tinbergen’s principle and threats posed to central banks’ independence, the provided evidence reveals a mismatch between the observed policy practice and its theoretical underpinnings. Drawing on these findings, we argue that effective green central banking governance should be based on a synthesis between monetary and macroprudential policymaking.

100 percent reserve banking: A critical review of green perspectives

100 percent reserve banking (C-PeRB) is an enduring proposal for monetary reform that has been taken up by some ecological economists. This paper identifies three groups of green arguments in favor of C-PeRB, and offers some criticism. First, the proposal could serve to constrain new investments by the availability of savings, thereby checking economic growth. However, this would strongly increase interest rate volatility. Second, it could potentially elevate environmental considerations in decisions about resource allocation by increasing the role of the democratic state as an economic actor. This line of argument faces problems that require further detailed exploration and historical perspective. Third, a transition to C-PeRB would allow debt levels to be drastically cut. This is technically possible, but politically a tall order. Whether the existing system of ‘debt-based’ bank money generates a significant growth imperative is unclear, and the importance of other driving forces behind perennial economic growth in modern societies – which C-PeRB does not address – remains an issue of contention. In general, the adoption of C-PeRB presupposes a tremendous reconfiguration of power relations between states and finance capital.

Taking up the climate change challenge: A new perspective on central banking

2020

The awareness about climate-related financial risks is gaining momentum both in the policy and academic debates. The role of countries' institutional dimension and central bank governance structures in the adoption of green prudential regulation is, however, overlooked in the current discussion. The paper fills this gap by proposing an analysis of the state-of-the-art, challenges and perspectives, of "green" central banking. The study complements existing research that usually points to an "extended" monetary policy mandate, including, for example, sustainability objectives or green growth, as the primary motivation for a central bank to engage in "green" financial policymaking. According to our research, the decision to implement green regulations is not exclusively related to the mandate per se, but on the central bank's independence and on how the interaction between the monetary and prudential policy is structured. Moreover, the higher exposure to climate-related adverse events also plays a crucial role in the adoption of green prudential regulations. To avoid potential conflicts between monetary policy and green prudential regulation caused by existing intertwined transmission mechanisms, on the one hand, our analysis emphasizes the importance of having a central bank that hosts the green prudential regulation under its governance roof. On the other hand, when the "green" governance models studied in the paper are in place, the Tinbergen principle is safeguarded.

G20 Central Bank Policy for Decarbonization

Vernon Press, 2024

Central banks play vital roles in ensuring financial stability and in shaping the regulatory landscape of financial services. In light of their implicit or explicit responsibility for financial and macroeconomic stability, central banks should address climate-related and other environmental risks in a systematic way. In addition, by overseeing money, credit, and the financial system, central banks can ensure that financial institutions adequately price environmental and carbon risk. As part of their monetary and financial policy mandates, central banks should develop capacity, set regulatory frameworks, encourage green loans and products, and consider climate change. It is possible for central banks to persuade the distribution of credit and investment of financial firms through a variety of powerful tools. The legal mandate of a central bank and its ability to rectify certain types of market failures that lead to green transformation determine whether it should utilize its powers and engage actively in greening the financial system and economy.

Central Bank Challenges in the Global Economy

European Yearbook of International Economic Law 2011, 2010

There are few institutions linked to the exercise of public power in the economic sphere that have stood the test of time for as long as central banks. 1 Indeed their origins can be traced back to the seventeenth century when in 1668 the Swedish 'Bank of the Estates of the Realm' the forerunner of todays Riksbank was established by the Riksdag, at the dawn of two major armed conflicts with neighbouring Denmark. Soon thereafter, in the midst of the Nine Year War between England and France the Bank of England was established by an Act of Parliament. 2 Other European countries such as France and the German Reich would follow suit in due course. 3 Asserting that the role of central banks has changed in the course of their long history is hardly original. These changes can be observed both with regard to their main tasks, as well as their ownership and (corporate) institutional structure. A number of central bank systems have emerged from private corporations ((joint-) stock companies) that were initially set up with the aim to raise capital for the financing of wars thus acting as the quasi-banker of government, while at the same time undertaking commercial banking. 4 Eventually these banks would become public corporations. 5 Other banks were set up as public corporations from

Net-zero central banking: A new phase in greening the financial system

Climate Change and Law Collection

brings together international expertise on economics, as well as finance, geography, the environment, international development and political economy to establish a world-leading centre for policy-relevant research, teaching and training in climate change and the environment. It is funded by the Grantham Foundation for the Protection of the Environment, which also funds the Grantham Institute-Climate Change and the Environment at

The Central Bank’s Policy Justification in Mitigating Climate Change

Journal of Central Banking Law and Institutions

In recent years, increasing awareness of the impact of climate change has attracted the attention of central banks in a number of countries. Under their authority, some central banks have started to formulate “green policies.” These green policies include a green version of quantitative easing, buying green bonds in order to support the growth of environmentally friendly financial institutions, and imposing restrictions or prohibitions on non-environmentally friendly industry lending by banks. Bank Indonesia itself is starting to explore banking policies that are more environmentally friendly, one of which is by managing financial instruments in a sustainable manner and providing green incentives. This raises unavoidable questions about the legitimacy of Bank Indonesia’s promulgation of these environmentally friendly bankingpolicies and the issues of independence, accountability and legitimacy that accompany them. This research found that green finance policies were adopted by Bank ...

Green Financial and Regulatory Policies: Why Are Some Central Banks Moving Faster than Others?

Global Environmental Politics

Climate change poses financial risks to individual firms and is a source of systemic risk to the stability of financial systems. Central banks are emerging as key state actors in environmental governance to tackle these risks, implementing policies encompassing regulatory oversight, credit guidance, and the greening of prudential regulations. The diffusion of these policies across countries is at various stages of deliberation and implementation. In this context, this article uses a newly constructed index measuring the intensity of green financial and regulatory policies imposed by central banks of various developed and developing countries from 1996 through 2018. We empirically assess whether central banks in countries that are more vulnerable to climate change are more likely to be implementers of these policies and find robust evidence in support of our hypothesis.