Toward a new playbook for green central banking

I’m sorry, folks, but the central banker bashing will be continuing this week.  Don’t blame me, though – direct your ire toward Katie Kedward, Daniela Gabor, and Josh Ryan-Collins, UK-based academics with a new paper out on the faux climate activism of the world’s monetary authorities.

‘Carrots with(out) sticks: credit policy and the limits of green central banking’ analyzes how central banks have dabbled in climate policy through credit and financial market interventions, and why their tinkerings have proven ineffective.  While this won’t be news to readers of Unpacking Climate Risk, what’s refreshing about the paper is the reason given for this ineffectiveness.  Namely, central banks’ “adherence to monetary dominance – prioritizing short-term price stability– and the structural demands of global market-based finance.”

I can hear the chuckles of agreement from Tony all the way from my desk in New York.  He’s been consistent in arguing that ‘climate policy via central bank’ could only ever be a “second-best solution”, with legislative action naturally the preferred means to a greener future.  This is because central banks have a limited range of policy levers to choose from to affect change in the real economy, which he sees as right and proper given their niche expertise and carefully delineated roles in the polity.

Kedward et al, however, don’t agree, and would probably argue that Tony himself is hidebound by “monetary dominance”, too. They say that what’s holding central banks back from being climate champions is their own reluctance to embrace a broader conception of their power and responsibilities, a reality brought about by institutional configurations they have themselves engendered.