Key Role Urged on Central Banks in Climate Fight

In the aftermath of the 2008/9 global financial crisis central banks around the world pumped billions of dollars into the monetary system to safeguard the world economy.  Now they are being asked to do so again – to tackle climate change.

The Green Climate Fund (GCF) – set up in 2010 under UN auspices with the aim of channeling funds to developing countries to fight climate change – is having a hard time of it.

The aim was for the GCF to raise US$100 billion per year by 2020:  so far total pledges of just over $10 bn have been received by the Fund.

Now a new way of funneling money to the GCF is being proposed, with central banks playing a central role.

The idea is for the GCF to issue “Green Climate Bonds” which would be purchased by central banks around the world: the money raised – billions and billions of dollars – would then be used to help fund renewable energy projects and other climate-related projects in developing countries.

The proposal is being made by the World Future Council, (WFC), a Germany-based group which helps governments and organisations with policy formulation.

Money creation
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The Green Climate Bonds would, in effect, be another form of money creation similar in some respects to what’s called quantitative easing – increasing money supply to stimulate the economy.  Only in the case of the climate bonds, this new money would be used to combat climate change.

Under the WFC’s proposals, between US$100 bn and $300 bn would be raised through green bond purchases each year.  The bonds would be valid for at least 100 years and become more or less enduring assets of the central banks, though they would give only a small or no rate of interest.
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Modest demands
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Compared to the sums which have been injected into the financial system by central banks in the wake of the global financial crisis, the amount of money at present being sought to tackle the potentially much more serious problem of climate change is relatively small.

The WFC says the Bank of England (BOE) has been among those investigating alternative ways of raising money in order to combat climate change.  A recently released research paper by the BOE said that central banks in future may have to respond to the challenges posed by climate change.

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