Global warm­ing is a cen­tral bank is­sue

Financial Chronicle - - EDIT, OPED, THE WORKS - — Fer­di­nando Gi­ugliano/Bloomberg

CEN­TRAL bankers have been dubbed “mas­ters of the uni­verse” for the tools and pow­ers they have ac­quired since the fi­nan­cial cri­sis. Some of them now want to play a more ac­tive role in the fight against cli­mate change.

Mon­e­tary au­thor­i­ties are right to be mind­ful of the way in which cli­mate risk af­fects their man­date to en­sure price sta­bil­ity and guard fi­nan­cial sta­bil­ity. But that is dif­fer­ent from seek­ing to pro­mote the shift to a “greener” econ­omy, which is the role of gov­ern­ment.

To do so, cen­tral bankers may need to ex­tend the su­per­vi­sory hori­zon be­yond their usual time span. Cli­mate change may only pose a threat for the bal­ance sheet some years down the road, but these risks should be as­sessed now. Villeroy de Gal­hau ar­gued in his speech that the fi­nan­cial sec­tor should move to­wards “a com­pul­sory trans­parency re­quire­ment”, so that com­pa­nies are forced to pro­vide a snap­shot of their cli­mate-re­lated risks. It’s an idea su­per­vi­sors around the world should em­brace.

The prob­lem with this idea is that it re­quires more spec­u­la­tion than cen­tral banks should be tasked with. What if this shift to a low-car­bon econ­omy hap­pens more slowly than an­tic­i­pated or does not hap­pen at all? An­other prob­lem is de­cid­ing where to draw the line when it comes to cen­tral banks nudg­ing eco­nomic ac­tors along: Should cen­tral banks also then im­pose higher cap­i­tal charges for loans to the gun in­dus­try just be­cause they ex­pect that at some stage there will be curbs in a coun­try such as the US?

In “pro­mot­ing green in­vest­ment” a cen­tral bank would risk over­step­ping its man­date. By choos­ing to treat bank loans dif­fer­ently de­pend­ing on their green cre­den­tials, a cen­tral bank could also be ac­cused of dis­tort­ing com­pe­ti­tion in the econ­omy.

Over the last decade, mon­e­tary au­thor­i­ties have pushed their tool­kits to the ex­treme. As a re­sult, they have come under closer scru­tiny from vot­ers and politi­cians, who have ques­tioned their in­de­pen­dence and de­manded greater ac­count­abil­ity. The last thing cen­tral bankers need now is to sug­gest they are seek­ing to in­flu­ence pol­icy that should rightly be the pre­serve of elected of­fi­cials.

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