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The two differed on the role of central banks in fighting global warming
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Lagarde, has made climate protection financing an ECB priority
Jerome Powel, head of US Federal Reserve, and Christine Lagarde, head of the European Central Bank, bickered openly on Friday when Powel said that it was not the central bank’s role to set climate policy, an assertion that did not go down well with Lagarde who warned that “the planet is burning.”
“We are not and we do not seek to be climate policy makers as such. We have a very specific mandate and precious independence,” Powell told a videoconference hosted by the Bank of International Settlements (BIS) and France’s central bank.
“We should avoid trying to fill in public policy where governments haven’t done so yet, that’s not up to us,” the head of the US central bank concluded.
Lagarde did not agree. “Our planet is burning and we, central bankers, could look down at our mandate and pretend that it is for others to act. And that we should simply be followers, I don’t think so,” Lagarde said. “I believe that if we did, we would be failing on our mandate and that we would be missing in action,” she added.
Chinese counterpart Yi Gang agreed that “our planet is in danger”, and added: “The most important thing we are doing is to tell the general public how important green finance and climate change risk is.”
Lagarde, who has made climate protection financing an ECB priority, referred to one of its key concerns when she said: “Climate change could impair monetary policy transmission because it is likely to induce financial instability if it is not taken into account.”
The bank would be “squarely in our mandate when we guide banks on climate related risks as well as environmental risks,” she added. Powell steadfastly sought to keep the Fed out of the fray, however, saying that “climate change is not something we directly consider in setting monetary policy.”
He nonetheless acknowledged that “there is no question that climate change has the potential to affect the structure of the economy over time. “Central banks clearly can play an important role in building data and analysis to understand the macroeconomic consequences of climate change, to qualify the risks for financial system through scenario analysis for example.”