Speaking at an online conference on Green Banking and Green Central Banking sponsored by the Goethe University in Frankfurt Jan. 26, Bundesbank President Jens Weidmann said central banks should not get involved in green financing. This is opposite to what ECB President Christine Lagarde and Prince Charles’ Green Finance Institute have been publicly pushing.
Weidmann did not challenge the idea of Green Finance as such, but used a few Nobel Prize laureates to back his claim that central banks should concentrate on those few tasks they are competent and equipped for. If you multiply the tasks, you end up doing none of them well, he said. “The hunter who chased two rabbits, ended up catching none.”
“For example, attempts could be made to make green investments more attractive to banks by granting a discount on the equity capital required for such investments. However, a green support could distort risk-based capital requirements, undermining efforts to strengthen the stability of the banking sector.“ This formulation refutes the myth that “carbon risk” has anything to do with banking.
“It would also be wrong to use monetary policy as a means of climate policy, for example by preferring ‘green’ securities and excluding bonds from carbon-intensive companies. For one, the impact of such measures on emissions should not be overestimated, as I have explained on previous occasions. On the other hand, the measures could be costly: Here, too, there is a possibility that conflicts of interest—this time with our primary goal of price stability—arise. Purchase programs are part of our expansionary monetary policy. However, they are not designed to last forever. So it would be short-sighted to assume that inflation will stay at a very low level forever.”
