Managing Climate Change Like a Central Banker: The Political Economy of Greening the Monetary Technocracy

Abstract

It is becoming increasingly clear that if we want to live up to the Paris Agreement and meet the 1.5°C commitment, our societies and economies need to undergo systemic changes at an unprecedented scale. All sectors in the economy will be affected and climate change will therefore likely impact financial and price stability. This realization has led central banks to engage with climate-related issues, leaving central bankers in an unprecedented situation: working with a policy domain outside their immediate knowledge remits. Climate change has become a mainstream issue in central banks, and it is against this background that I seek to understand how central bankers have approached the work with climate change and the extent to which central banks have been repurposed as they have set out to deal with the greatest challenge of our time: the climate crisis. The dissertation draws on insights from International Political Economy, where the dominant approach has been to view central banking from institutional, structural, or ideational perspectives. Here I utilize a micro-level analytical approach constructed around three factors: practices, expertise, and legibility. To understand how central bankers have worked with climate change, I examine the practices they have incorporated, with a focus on climate stress testing and modeling of climate-related risks. I also discuss the types of expertise deployed as I seek to understand how central bankers, trained mainly as economists, work in an entirely new policy domain such as climate change. Finally, I set out to analyze how central bankers have made climate change legible by turning climate change into a risk issue; for central bankers, climate change becomes a risk-based issue, similar to other routine economic problems. I argue central bankers have approached climate change like any other task. In treating climate change as a risk issue, central bankers have been able to work with climate change using their existing expertise and adapting their modeling frameworks to deal with climate-related risks, like any other financial risk. Thus, even though climate change represents a new policy domain, central bankers have maintained the status quo, and subsumed climate change under their current modus operandi. The necessary fundamental changes to the conduct of central banking in the age of anthropogenic climate change remain absent. Despite the urgency of the climate crisis, it is business as usual for the central banks.