A new research article asserts that central banks can do more to fight climate change.
Patrick Honohan, a fellow at the Peterson Institute for International Economics recently wrote a paper placing more responsibility on central banks when it comes to climate change. He believes that central banks could have an impact on climate change by tailoring their monetary policy towards avoiding firms whose operations hurt the environment.
“If central banks applied to their own bond purchases the new approach to climate-related financial risk that they are pressing on private bankers, they would reduce their purchases of bonds issued by carbon-intensive firms,” Mr. Honohan wrote.
Central banks consistently buy bonds in order to provide stimulus to the economy. This stimulus can help reach certain inflation rate goals and also promote job growth. The Federal Reserve face stringent conditions on which bonds it can buy.
However, the European Central Bank has more freedom on which bonds they can purchase. Consequently, they are able to avoid buying bonds from environmentally unfriendly firms. However, Jerome Powell, chairman of the Fed is pushing back against the principles of this paper.
“The main responsibility for climate change now—dealing with climate change—resides with legislatures and particular agencies that are focused on the economy. We’re not in a place where I think we would conduct monetary policy in order to deal with climate change type issues,” Powell said.