NextGen Central Banking: Central Banking and Climate change - A new era of monetary financing?
Transformative Responses, Heinrich-Böll-Foundation & Finanzwende, 2021
Central banks have once again proven to be the first line of defense in crisis-ridden times. With their far reaching actions they prevented the world from experiencing a collapse of financial markets on top of the severe health and economic crisis caused by Covid-19. Since the global financial crisis, central banks' roles and repertoire have vastly changed. This calls for a wider debate on the role of central banks in times of financial instability, growing inequality and an escalating climate crisis. Central banks have powerful tools at their disposal. Should they - and if so, how - support policy goals beyond their traditional price stability mandate? According to Sabine Lautenschläger, former ECB executive board member, central banks should not operate monetary financing because the long-term transition costs of lost independence would be too high. On the other hand, Gabor quotes her recent 'Revolution without revolutionaries', where she points out that central banks are very influential in financial markets and have been engaging in shadow monetary financing since 2008. While they buy large shares of government bonds, they refuse to directly finance fiscal policies in the name of their illusory neutrality. She believes that there is the immediate need for fiscal-monetary coordination as the only way to effectively tackle the climate crisis.
Comment from our editors:
In this interesting debate, each of the three panelists gives a different view on how central banks are and should intervene to save the world from ecological degradation. Even if your opinion allignes with one specific speaker, this direct dialogue will be stimulating and enriching.