How are Central Banks helping to make the Recovery from the Covid-19 Pandemic more sustainable and inclusive?

Abstract

Without the timely, coordinated, countercyclical and massive policy response to the Covid-19 pandemic by fiscal and monetary authorities around the globe, the downturn could have been much worse. On top of their own unprecedented monetary policy response, central banks are facilitating a sustainable and inclusive recovery in many ways. First, by raising awareness that climate-change related risks are a significant threat to global financial stability. Second, by showing that collective coordinated action, changes in supply and demand behaviour, and other public policies including adequate carbon pricing are required. Third, by fostering policies that ensure low financing costs of mitigation and transition and providing guidance that this will be maintained for an appropriately long horizon. Fourth, by developing analytical tools as public goods to improve the measurement, assessment and mitigation of such risks (such as new risk models, climate stress testing, climate scenarios, disclosure of carbon exposures and analysis of the redistributive impact of climate policies). And fifth, by engaging with the financial private sector to develop new financial instruments to accelerate adaptation and transition towards a net zero goal, which is increasingly endorsed by many countries.