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The Changing Climate of Central Banking

Summary:
In the space of just a few years, the idea that central banks should incorporate climate considerations into their policies has gone from sounding radical to seeming like plain common sense. In fact, the overriding risk is that central banks will do too little to address climate change, rather than too much. LONDON – Nearly everywhere one looks nowadays – newsrooms, corporate manifestos, and government agendas – climate change has moved from the fringe to center stage. And central banks, after long standing on the sidelines, have recently begun to play a starring role. Build Back the State Getty/Bettman  Is Stagflation Coming?

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In the space of just a few years, the idea that central banks should incorporate climate considerations into their policies has gone from sounding radical to seeming like plain common sense. In fact, the overriding risk is that central banks will do too little to address climate change, rather than too much.

LONDON – Nearly everywhere one looks nowadays – newsrooms, corporate manifestos, and government agendas – climate change has moved from the fringe to center stage. And central banks, after long standing on the sidelines, have recently begun to play a starring role.

The Bank of England, for example, just became the first central bank to include in its policy remit a reference to supporting the transition to a net-zero-emissions economy. The European Central Bank is discussing how – not merely whether – to incorporate climate considerations in its own monetary policy. And the Network for Greening the Financial System (NGFS), a global group of central banks and financial supervisors, has more than doubled its membership over the past two years. Its 62 central banks include those of all but four G20 member states.

Such a speedy shift is bound to invite spirited debate – as well it should. But the overall premise for the change is sound. If anything, the overriding risk is that central banks will still do too little, rather than too much, about climate change.

Over the past few years, a consensus among central-bank leaders regarding climate risks to financial stability has emerged. The Bank for International Settlements database shows that whereas only four central-bank governors delivered speeches on green finance in 2018, 13 did just two years later. And now, nearly half of NGFS...

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