Beyond market neutrality? Central banks and the problem of climate change

Thiemann, Matthias; Büttner, Tim; Kessler, Oliver

doi:10.2218/finsoc.8090

Cited by 13 publications

(7 citation statements)

References 25 publications

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“…The not-so-secret government of the world. that climate change has become a mainstream issue for central bankers to discuss (Deyris, 2023;Thiemann et al, 2022) Central banks took an outsized role in the wake of the financial crisis. They have now become the dominant actors in the governance of the financial system and the broader macroeconomy, a role they reaffirmed at the outbreak of the pandemic with the establishment of swap lines and purchase of junk bonds (Tooze, 2021).…”

Section: Discussionmentioning

confidence: 99%

“…Designed in the mirror of the Bundesbank, the ECB has a primary mandate of securing price stability and a more vaguely formulated secondary mandate to support the general policies of the EU without prejudice to the objective to secure price stability. Thiemann et al, 2022).…”

Section: Structure Of the Dissertationmentioning

confidence: 99%

“…Instead, in the next section I argue that in order to understand central banks' involvement with climate-related issues -a terrain that is quite unique in the sense that this is the first time central banks engage with an issue outside their immediate field of knowledge -we need to explore a different set of factors than the ones emphasized in the literature. While much of the work on green central banking focuses on the ways of greening monetary policy Matikainen et al, 2017;, the institutional constraints in the form of mandate and how this relates to climate change Boneva et al, 2022;Dikau & Volz, 2021a;van 't Klooster & de Boer, 2022), or discursive shifts (Thiemann et al, 2022) (Braun, 2015) and is more or less uncovered in the literature on green central banking that mostly considers institutional issues Oman et al, 2022), with the important exception of Siderius' ( 2022 They uncover a particular culture and set of practices that led to this ignorance, like an inherent belief in the idea of 'post hoc interventionism' , or the dominance of a macroeconomic frame which made it difficult to connect the events in the financial sector to the housing bubble . We also know from the literature on professionals that training and career background matters in the production of new policies , that expert networks are highly influential in central banks and associated international organizations such as BIS and FSB Seabrooke & Tsingou, 2014;Tsingou, 2015) and that we should not think of professionals as attached to their organizations, but as individuals who seek to take issue control on a given issue (Seabrooke & Henriksen, 2017).…”

Section: State Of the Artmentioning

confidence: 99%

“…Unfortunately for such attempts at broadening the agenda, while there has been an important discursive shift in the way central banks address climate-related issues Thiemann et al, 2022) and they fully recognize that climate change imposes a new type of risk on the financial sector ; Network for Greening the Financial System, 2019), central banks have remained hesitant to undertake more activist measures. Central banks have hitherto mostly followed a market-correcting approach, pressing for improved disclosure of climate-related risks and conducting climate stress tests to better understand the exposure to climate-related risks Boneva et al, 2022;.…”

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confidence: 99%

“…While fundamental reforms of the financial system remained absent (Helleiner, 2014;, the QE programs resulted in an ever-larger presence of central banks in the financial markets (Gabor, 2016a(Gabor, , 2016b. After years of QE programs, it became clear that central banks are deeply embedded in the functioning of the financial system Thiemann et al, 2022;van 't Klooster & Fontan, 2019). After the financial crisis, central banks rolled out the crisis toolkit anew to avert the shock from the Covid-19 pandemic, underlining the relevance of questioning the remits of central banks, and whether they are in fact capable of mitigating climate change within their mandate .…”

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Managing Climate Change Like a Central Banker: The Political Economy of Greening the Monetary Technocracy

Quorning¹

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It is becoming increasingly clear that if we want to live up to the Paris Agreement and meet the 1.5°C commitment, our societies and economies need to undergo systemic changes at an unprecedented scale. All sectors in the economy will be affected and climate change will therefore likely impact financial and price stability. This realization has led central banks to engage with climate-related issues, leaving central bankers in an unprecedented situation: working with a policy domain outside their immediate knowledge remits. Climate change has become a mainstream issue in central banks, and it is against this background that I seek to understand how central bankers have approached the work with climate change and the extent to which central banks have been repurposed as they have set out to deal with the greatest challenge of our time: the climate crisis. The dissertation draws on insights from International Political Economy, where the dominant approach has been to view central banking from institutional, structural, or ideational perspectives. Here I utilize a micro-level analytical approach constructed around three factors: practices, expertise, and legibility. To understand how central bankers have worked with climate change, I examine the practices they have incorporated, with a focus on climate stress testing and modeling of climate-related risks. I also discuss the types of expertise deployed as I seek to understand how central bankers, trained mainly as economists, work in an entirely new policy domain such as climate change. Finally, I set out to analyze how central bankers have made climate change legible by turning climate change into a risk issue; for central bankers, climate change becomes a risk-based issue, similar to other routine economic problems. I argue central bankers have approached climate change like any other task. In treating climate change as a risk issue, central bankers have been able to work with climate change using their existing expertise and adapting their modeling frameworks to deal with climate-related risks, like any other financial risk. Thus, even though climate change represents a new policy domain, central bankers have maintained the status quo, and subsumed climate change under their current modus operandi. The necessary fundamental changes to the conduct of central banking in the age of anthropogenic climate change remain absent. Despite the urgency of the climate crisis, it is business as usual for the central banks.

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Section: Discussionmentioning

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Section: Structure Of the Dissertationmentioning

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Managing Climate Change Like a Central Banker: The Political Economy of Greening the Monetary Technocracy

Quorning¹

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Ecological transition in a monetary economy of production: a heterodox approach

Solari,

Le Bloc’h,

Rossi

2024

Eurasian Econ Rev

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The global warming challenge is probably the major issue of our epoch, calling for a concerted response involving as many entities as possible. The economic system being the main responsible of this troubling situation, it is logical to address it first. The actual monetary economy of production has the banking system as the main driver of its functioning which justifies putting our attention on it. Central banks play a prominent role in such a system. They thus dispose of a relevant room for maneuver, which constitutes one of the main topics addressed here. Before that, this article discusses environmental concerns in a monetary production economy, advocating for an ecological economics approach as our privileged analytical foundation and highlighting the seminal role of the banking system in the monetary essence of our economic system, thus calling for an effort to enrich current monetary policy practices which must depart from the myth of ‘market neutrality’. We therefore propose four axes of intervention with regard to the greening of central banks’ action, which aim at redirecting credit away from carbon-intensive activities and towards low-carbon economic sectors. As needed as it is, adjusting monetary policy would however not suffice, the actual climate crisis being enrooted within the economic growth mantra applied through a profit-seeking scheme. A questioning of the very basis of our economic system is thus required to make the economy sustainable and finally safeguarding the conditions of life on earth.

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Greener and cheaper: green monetary policy in the era of inflation and high interest rates

Aguila,

Wullweber

2024

Eurasian Econ Rev

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In recent years central bankers have devoted increased attention to the question of whether and how to intervene to address the growing environmental and climate crisis. The climate intervention debate gained momentum during a period of low inflation and loose monetary policy in core economies – a time characterised by near zero interest rates and large asset purchase programmes. Since 2021, however, the macroeconomic context has changed. Against this background, the paper analyses the contradictory and problematic nature of the direction monetary policy has taken in reaction to higher inflation. It argues that higher interest rates delay the green transformation by raising the cost of sustainable investments, and that the resulting delay also hampers prospects for achieving price stability. The paper concludes that the present macroeconomic environment demands a ‘greener and cheaper’ monetary policy approach designed to address the environmental and climate crisis and also to simultaneously fight inflation.

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Beyond market neutrality? Central banks and the problem of climate change

Cited by 13 publications

References 25 publications

Managing Climate Change Like a Central Banker: The Political Economy of Greening the Monetary Technocracy

Managing Climate Change Like a Central Banker: The Political Economy of Greening the Monetary Technocracy

Ecological transition in a monetary economy of production: a heterodox approach

Greener and cheaper: green monetary policy in the era of inflation and high interest rates

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