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MNI POLICY: BIS: CenBks May Be Climate Rescuers Of Last Resort

By Evan Ryser
     WASHINGTON (MNI) - Climate change threatens the price stability targets of
central banks and the damage could force them to rescue the financial system
again, the Bank for International Settlements said in a research paper Monday.
     Central banks may have to become "climate rescuers of last resort" and buy
large sets of devalued or carbon-intensive assets, said the paper from the
Switzerland-based BIS.
     "A new global financial crisis triggered by climate change would render
central banks and financial supervisors powerless," said the paper by BIS Deputy
General Manager Luiz Awazu Pereira da Silva and co-authors Patrick Bolton,
Morgan Despres, Frederic Samama and Romain Svartzman.
     Central banks have a role to play in avoiding such an outcome, like
providing better analysis of the potential for future damage. Using traditional
backward-looking risk assessments and existing climate-economic models is
"particularly challenging" and cannot anticipate accurately enough "green swan"
     These "green swan" risks -- inspired by Nassim Nicholas Taleb's "black
swan" -- include physical, social, and economic damage related to the changing
     The BIS also called on central banks to coordinate the fight against
climate change, including evaluating carbon taxes and integrating sustainability
into financial practices. 
     "Naturally, the first-best solution to address climate change and reduce
greenhouse gas emissions is Pigovian carbon taxation," Agustin Carstens, chief
of the BIS, wrote in a foreword to the paper. "This policy suggests that
fundamental responsibility for addressing issues related to climate change lies
with governments."
     Policy makers have only in the last few years begun to tackle dangers from
rising storm damage and rules favoring renewable energy over fossil fuels. Bank
of England Governor Mark Carney warns climate change has become a major concern
to the global economy and President Christine Lagarde has vowed to put climate
change on the ECB's agenda. Fed Governor Lael Brainard has said it will be
important to "take into account the effects of climate change and associated
policies in setting monetary policy."
     The BIS was skeptical change can happen fast enough. With many post-World
War II institutions under growing criticism, the "unprecedented level of
international coordination required to address the difficult political economy
of climate change is seriously compromised," the paper said.
--MNI Washington Bureau; +1 202 371 2121; email:
[TOPICS: MMUFE$,M$U$$$,MC$$$$,MI$$$$,MGU$$$]

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