Editing Central bank (section)

==Central bank mandates==

=== Price stability ===
The primary role of central banks is usually to maintain price stability, as defined as a specific level of inflation. [[Inflation]] is defined either as the devaluation of a currency or equivalently the rise of prices relative to a currency. Most central banks currently have an [[inflation targeting|inflation target]] close to 2%.

Since inflation lowers [[real wage]]s, [[Keynesian economics|Keynesians]] view inflation as the solution to involuntary unemployment. However, "unanticipated" inflation leads to lender losses as the real interest rate will be lower than expected. Thus, Keynesian monetary policy aims for a steady rate of inflation.

Central banks as monetary authorities in representative states are intertwined through globalized financial markets. As a regulator of one of the most widespread currencies in the global economy, the US Federal Reserve plays an outsized role in the international monetary market. Being the main supplier and rate adjusted for US dollars, the Federal Reserve implements a set of requirements to control inflation and unemployment in the US.<ref>[https://www.reuters.com/markets/europe/central-banks-raise-rates-again-fed-drives-global-inflation-fight-2022-09-22/] {{Webarchive|url=https://web.archive.org/web/20221210132225/https://www.reuters.com/markets/europe/central-banks-raise-rates-again-fed-drives-global-inflation-fight-2022-09-22/|date=10 December 2022}}, Central banks raise rates again as Fed drives global inflation fight</ref>

=== High employment ===
[[Frictional unemployment]] is the time period between jobs when a worker is searching for, or transitioning from one job to another. Unemployment beyond frictional unemployment is classified as unintended unemployment. For example, [[structural unemployment]] is a form of unintended unemployment resulting from a mismatch between demand in the labour market and the skills and locations of the workers seeking employment. Macroeconomic policy generally aims to reduce unintended unemployment.

Keynes labeled any jobs that would be created by a rise in wage-goods (i.e., a decrease in [[Real wage|real-wages]]) as [[involuntary unemployment]]:

::Men are involuntarily unemployed if, in the event of a small rise in the price of wage-goods relatively to the money-wage, both the aggregate supply of labour willing to work for the current money-wage and the aggregate demand for it at that wage would be greater than the existing volume of employment.— [[John Maynard Keynes]], ''[[The General Theory of Employment, Interest and Money]]'' p1

===Economic growth===
Economic growth can be enhanced by investment in [[Capital (economics)|capital]], such as more or better machinery. A low interest rate implies that firms can borrow money to invest in their capital stock and pay less interest for it. Lowering the interest is therefore considered to encourage economic growth and is often used to alleviate times of low economic growth. On the other hand, raising the interest rate is often used in times of high economic growth as a contra-cyclical device to keep the economy from overheating and avoid market bubbles.

Further goals of monetary policy are stability of interest rates, of the financial market, and of the foreign exchange market.
Goals frequently cannot be separated from each other and often conflict. Costs must therefore be carefully weighed before policy implementation.

=== Climate change ===
In the aftermath of the [[Paris Agreement|Paris agreement on climate change]], a debate is now underway on whether central banks should also pursue environmental goals as part of their activities. In 2017, eight central banks formed the [[Network for Greening the Financial System|Network for Greening the Financial System (NGFS)]]<ref>{{cite web|date=2017-12-12|title=Joint statement by the Founding Members of the Central Banks and Supervisors Network for Greening the Financial System – One Planet Summit|url=https://www.banque-france.fr/en/communique-de-presse/joint-statement-founding-members-central-banks-and-supervisors-network-greening-financial-system-one|access-date=2020-11-21|website=Banque de France|language=en-GB|archive-date=26 November 2020|archive-url=https://web.archive.org/web/20201126192807/https://www.banque-france.fr/en/communique-de-presse/joint-statement-founding-members-central-banks-and-supervisors-network-greening-financial-system-one|url-status=live}}</ref> to evaluate the way in which central banks can use their regulatory and monetary policy tools to support [[climate change mitigation]]. Today more than 70 central banks are part of the NGFS.<ref>{{cite web|url = https://www.ngfs.net/en/about-us/membership|title = Membership|date = 12 September 2019|access-date = 21 November 2020|archive-date = 19 April 2020|archive-url = https://web.archive.org/web/20200419145454/https://www.ngfs.net/en/about-us/membership |url-status= live}}</ref>

In January 2020, the [[European Central Bank]] has announced<ref>{{cite press release |publisher=European Central Bank |date=2020-01-23 |title=ECB launches review of its monetary policy strategy |url=https://www.ecb.europa.eu/press/pr/date/2020/html/ecb.pr200123~3b8d9fc08d.en.html |language=en}}</ref> it will consider climate considerations when reviewing its monetary policy framework.

Proponents of "green monetary policy" are proposing that central banks include climate-related criteria in their collateral eligibility frameworks, when conducting asset purchases and also in their refinancing operations.<ref>{{Cite web|last=Lerven|first=Frank van|title=The European Central Bank and climate change|url=https://neweconomics.org/2020/04/the-ecb-and-climate-change|access-date=2020-11-21|website=New Economics Foundation|language=en|archive-date=27 November 2020|archive-url=https://web.archive.org/web/20201127085523/https://neweconomics.org/2020/04/the-ecb-and-climate-change|url-status=live}}</ref> But critics such as [[Jens Weidmann]] are arguing it is not central banks' role to conduct climate policy.<ref>{{Cite web|title=Weidmann: Central banks do not have a magic wand for saving the planet|url=https://www.bundesbank.de/en/press/contributions/central-banks-cannot-solve-climate-change-on-their-own--851320|access-date=2020-11-21|website=www.bundesbank.de|language=en|archive-date=19 November 2020|archive-url=https://web.archive.org/web/20201119094536/https://www.bundesbank.de/en/press/contributions/central-banks-cannot-solve-climate-change-on-their-own--851320|url-status=live}}</ref> China is among the most advanced central banks when it comes to green monetary policy.<ref>{{cite web |title=The Green Central Banking Scorecard |url=https://positivemoney.org/publications/green-central-banking-scorecard/ |access-date=2022-06-06 |website=Positive Money |archive-date=29 May 2022 |archive-url=https://web.archive.org/web/20220529234432/https://positivemoney.org/publications/green-central-banking-scorecard/ |url-status=live}}</ref> It has given green bonds preferential status to lower their yield<ref>{{cite journal |last1=Macaire |first1=Camille |last2=Naef |first2=Alain |date=2022-01-09 |title=Greening monetary policy: evidence from the People's Bank of China |url=https://doi.org/10.1080/14693062.2021.2013153 |journal=Climate Policy |volume=23 |pages=138–149 |doi=10.1080/14693062.2021.2013153 |s2cid=235592376 |issn=1469-3062 |access-date=6 June 2022 |archive-date=1 July 2023 |archive-url=https://web.archive.org/web/20230701075448/https://www.tandfonline.com/doi/full/10.1080/14693062.2021.2013153 |url-status=live }}</ref> and uses window policy to direct green lending.<ref>{{cite journal |last1=Dikau |first1=Simon |last2=Volz |first2=Ulrich |date=2021-12-08 |title=Out of the window? Green monetary policy in China: window guidance and the promotion of sustainable lending and investment |journal=Climate Policy |volume=23 |pages=122–137 |doi=10.1080/14693062.2021.2012122 |s2cid=245098383 |issn=1469-3062|doi-access=free}}</ref>

The implications of potential [[stranded asset]]s in the economy highlights one example of the embedded transition risk to climate change with potential [[cascade effect]]s throughout the [[financial system]].<ref>{{cite journal |last1=Campiglio |first1=Emanuele |last2=Dafermos |first2=Yannis |last3=Monnin |first3=Pierre |last4=Ryan-Collins |first4=Josh |last5=Schotten |first5=Guido |last6=Tanaka |first6=Misa |date=2018 |title=Climate change challenges for central banks and financial regulators |url=https://www.nature.com/articles/s41558-018-0175-0 |journal=Nature Climate Change |language=en |volume=8 |issue=6 |pages=462–468 |doi=10.1038/s41558-018-0175-0 |bibcode=2018NatCC...8..462C |s2cid=90694773 |issn=1758-6798 }}</ref><ref>{{Cite book |last=European Systemic Risk Board. |url=https://data.europa.eu/doi/10.2849/703620 |title=Too late, too sudden: transition to a low carbon economy and systemic risk. |date=2016 |publisher=Publications Office |location=LU |doi=10.2849/703620|isbn=978-92-95081-24-6 }}</ref><ref>{{Cite journal |date=2013-01-01 |title=Unburnable carbon 2013: wasted capital and stranded assets |url=https://doi.org/10.1108/meq.2013.08324eaa.003 |journal=Management of Environmental Quality|volume=24 |issue=5 |doi=10.1108/meq.2013.08324eaa.003 |issn=1477-7835}}</ref> In response, four broad types of interventions including methodology development, investor encouragement, [[financial regulation]] and policy toolkits have been adopted by or suggested for central banks.<ref name=":0" />

Achieving the [[2 degree climate target|2°C threshold]] revolve in part around the development of climate-aligned financial regulations. A significant challenge lies in the lack of awareness among corporations and investors, driven by poor information flow and insufficient disclosure.<ref name=":0" /> To address this issue, regulators and central banks are promoting transparency, [[integrated reporting]], and exposure specifications, with the goal of promoting long-term, low-carbon emission goals, rather than short-term financial objectives.<ref name=":0" /><ref>{{cite journal |last1=Galati |first1=Gabriele |last2=Moessner |first2=Richhild |date=2017 |title=What Do We Know About the Effects of Macroprudential Policy? |url=https://onlinelibrary.wiley.com/doi/10.1111/ecca.12229 |journal=Economica |language=en |volume=85 |issue=340 |pages=735–770 |doi=10.1111/ecca.12229 |s2cid=151251007 |issn=0013-0427 }}</ref> These regulations aim to assess risk comprehensively, identifying [[carbon-intensive]] assets and increasing their capital requirements. This should result in high-carbon assets becoming less attractive while favoring low-carbon assets, which have historically been perceived as high-risk, and low [[Volatility (finance)|volatility]] [[investment vehicles]].<ref name=":0" /><ref>{{cite journal |date=2017 |editor-last=Arestis |editor-first=Philip |editor2-last=Sawyer |editor2-first=Malcolm |title=Economic Policies since the Global Financial Crisis |url=https://doi.org/10.1007/978-3-319-60459-6 |journal=SpringerLink |language=en |doi=10.1007/978-3-319-60459-6|isbn=978-3-319-60458-9 }}</ref><ref>{{cite journal |last1=Schoenmaker |first1=Dirk |last2=Van Tilburg |first2=Rens |date=2016-09-01 |title=What Role for Financial Supervisors in Addressing Environmental Risks? |url=https://doi.org/10.1057/ces.2016.11 |journal=Comparative Economic Studies |language=en |volume=58 |issue=3 |pages=317–334 |doi=10.1057/ces.2016.11 |s2cid=256511579 |issn=1478-3320}}</ref>

[[Quantitative easing]] is a potential measure that could be applied by Central banks to achieve a low-carbon transition.<ref name=":0" /> Although there is a historical bias toward high-carbon companies, included in Central banks portfolios due to their high credit ratings, innovative approaches to quantitative easing could invert this trend to favor low-carbon assets.<ref name=":0" /><ref>{{cite journal |last=Monnin |first=Pierre |date=2018 |title=Central Banks and the Transition to a Low-Carbon Economy |url=http://dx.doi.org/10.2139/ssrn.3350913 |journal=SSRN Electronic Journal |doi=10.2139/ssrn.3350913 |s2cid=219373327 |issn=1556-5068}}</ref><ref>{{cite web |last1=Bernardo |first1=Giovanni |last2=Ryan-Collins |first2=Josh |last3=Werner |first3=Richard |last4=Greenham |first4=Tony |title=Strategic quantitative easing |url=https://neweconomics.org/2013/07/strategic-quantitative-easing |access-date=2023-11-03 |website=New Economics Foundation |language=en}}</ref>

Considering the potential impact of central banks on climate change, it is important to consider the mandates of central banks. The mandate of a central bank can be narrow, meaning only a few objectives are given, limiting the ability of a central bank to include climate change in its policies.<ref name=":0" /> However, central bank mandates may not necessarily have to be modified to accommodate climate change-related activities.<ref name=":0" /> For example, the [[European Central Bank]] has incorporated carbon-emissions into its asset purchase criteria, despite its relatively narrow mandate that focuses on price stability.<ref>{{cite journal |last=European Central Bank |title=ECB provides details on how it aims to decarbonise its corporate bond holdings |url=https://www.ecb.europa.eu/press/pr/date/2022/html/ecb.pr220919~fae53c59bd.en.html |access-date=2023-11-03 |website=European Central Bank|date=19 September 2022 }}</ref>