FT: central banks split on climate change era monetary policy

There is now a consensus among central banks that the growing risks to financial stability must be addressed urgently. Mark Carney, in his twin roles of governor of the Bank of England and former chairman of the G20’s Financial Stability Board, has been the world leader in encouraging corporations to measure, publish and address climate risks, backed by stress tests. He is soon to leave the BoE but he moves on to become UN envoy on these issues.

By improving the quality of information on the effects of climate change, Carney hopes to avoid a “Minsky moment”, akin to the subprime mortgage collapse in 2008, when complacent markets suddenly recognised the scale of hidden risks embedded in asset prices.

About 50 central banks have now joined the NGFS, the central banks’ network focused on climate change risk management. The Federal Reserve has declined to participate, but is realising that this position will not be tenable for much longer. On monetary policy, however, there is less consensus, and a clear divide is emerging between the Fed and the European Central Bank.

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