Central banks work best when when politics is at arm's length. Too much greenery is a threat to their independence
are criticised for failing to do enough about climate change. Much rarer is the public body that is doing too much. Yet central banks, the institutions whose job it is to control inflation, tame the economic cycle and police the financial system, are in danger of falling into this lonely category. Since the global financial crisis, their power in pursuit of those limited economic goals has grown substantially. Now they face pressure to wield it in order to save the planet.
Start with what is necessary and good. Climate change does not pose a critical threat to the financial system today. But extreme weather and changes in sea-levels could eventually leave insurers with vast bills and banks with dud loans . An imminent risk is a sudden change in climate policy. Were governments to impose a swingeing tax on carbon, many fossil-fuel firms would get into financial trouble, as would firms that depend on dirty inputs.
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