Central banking’s green limits spark debate in Sweden

STOCKHOLM: How should a central bank respond to global warming? In Sweden, a body created to monitor government efforts to fight climate change says the law that guides monetary policy needs a serious overhaul.

Cecilia Hermansson, the vice chair of the Swedish Climate Policy Council, is advising the government to include environmental considerations in the Riksbank Act, which is currently under review. She also says an existing proposal to amend the law doesn’t go nearly far enough.

“Climate is mentioned four times in over 2,000 pages, ” Hermansson said in an interview. Sweden’s Riksbank has already taken several steps to design a greener monetary policy. It’s cleansed its reserves of assets tied to pollution, and recently started mapping the carbon footprint of its corporate bond purchase programme. In a recent paper, it said global warming was set to lead to the kinds of crises that would force central banks to provide more monetary stimulus.

Magdalena Andersson, Sweden’s finance minister, says the government “hasn’t yet taken a position” on how big a role climate should play in the Riksbank’s mandate. “This is a new proposal, ” she said of the council’s recommendations. Riksbank’s own board members are questioning the merits of diluting its aim of maintaining price stability with climate goals. Martin Floden, a deputy governor, says monetary policy makers “want to contribute to increased transparency when it comes to the climate footprint”. ─ Bloomberg

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