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Climate Change Leads Central Banks’ Policies

“Climate change can directly affect inflation. This can happen when more frequent floods or droughts destroy crops and raise food prices, for example,” Frank Elderson, ECB Executive Board member and chair of the central bankers’ climate group noted in an article on global climate change published by the Wall Street Journal.

Finding solutions to climate change is increasingly influencing more business and social sectors around the planet. Central banks in most of the world’s economies are becoming increasingly aware of the issues involved and are planning new guidelines and regulations.

For example, a conference will be held next month to discuss the impact of climate change on the banking sector. Central banks are considering ways in which they can achieve environmental sustainability while keeping prices stable. Most central banks in Europe have already started the process of change. This type of regulation could affect US banks operating abroad.

The Bank of France is calculating the costs of climate change. For her part, Christine Lagarde, president of the European Central Bank – since the beginning of her mandate – aims to put climate change and environmental protection at the center of the institution’s monetary authority. The Bank of England has begun to act along the same lines. This year, the Treasury chief in the UK, Rishi Sunak, has changed the remit of the interest-rate-setting committee aiming to include a strong sustainable growth that also encompasses environmental sustainability.

One of the measures being considered by central banks is higher capital charges for loans to fossil fuel companies and lower charges for loans to solar or wind energy companies.

The debate on green monetary policy in the 21st century and the attempt by central banks to standardize it raises the question of the legitimacy of businesses in terms of whether they operate in environmentally sustainable terms or not. This move could provoke not only economic but also political and social disturbances.

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