The idea that central banks should conduct “climate policy” is fortunately dying out.
I say fortunately because central banks essentially have only one instrument – how much money they create – and that instrument can only be used for one thing.
So if one invents all sorts of tasks, one sets aside the main task – ensuring nominal stability.
The Federal Reserve understands this well, and yesterday the Fed announced that it has withdrawn from the “Network of Central Banks and Supervisors for Greening the Financial System”, while both the European Central Bank and other European central banks remain committed members of this network.
Over the last 10-15 years, we have seen a massive politicisation of the global financial system, where political decision-makers have put pressure both directly and indirectly on banks, pension funds – and indeed central banks – to “save the world” with all manner of agendas.
This has typically been about “climate”, “diversity”, “inclusion” etc. One can think what one likes about these objectives, but they all have in common that if one believes these things should be promoted, then one must do it through state subsidies or the opposite (taxes) and not through a politicisation of financial institutions.
As is known, I am not exactly a fan of Trump, but I thoroughly welcome that we are getting a reckoning with an entirely untimely politicisation of financial institutions – from commercial banks to central banks.
However, I have one significant concern – namely that we are merely replacing one form of politicisation with a new form of politicisation. That is, we are moving from forced “wokeness” to forced “anti-wokeness”.
And yes, the worst imaginable form of politicisation of monetary policy we might soon see – when Trump will force the Fed to conduct very accommodative monetary policy.
But I have always perceived “greening” of the financial system and central banks as an absolutely foolish idea.
And won’t we likely see a number of not only American, but also European banks and pension funds dramatically scale back their ESG, climate, DEI, etc. initiatives in the coming time?
