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Central Banking’s Green Mission

Since the 2008 global financial crisis, central banks have shown time and again that they have the power to maintain the economic status quo. Now, they must use that power to support a timely green transition.

LONDON – “Mission creep” – the gradual or incremental broadening of an organization’s objectives beyond its original scope or focus – is typically regarded as undesirable. According to the conventional wisdom, an organization whose mission creeps is straying from its core purpose, becoming distracted, stretching itself too thin. But what if the new objectives are essential to society’s welfare? For central banks, the answer should be obvious.

Over the last few decades, central banks’ core purpose was to ensure stable price and financial stability. But, as the existential threat of climate change has become increasingly apparent, their attention has gradually broadened to include climate-related financial risks. And yet this much-needed mission creep has not been adequately translated into action on the ground.

Central banks’ impact on climate change became apparent following the 2008 global economic crisis, when many monetary policymakers embraced quantitative easing (QE), buying up huge quantities of government and corporate bonds in an effort to keep long-term interest rates low. That effort succeeded, but central banks’ purchases of corporate bonds have been criticized for propping up the high-carbon status quo.

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