ecb now measures and monitors climate - related risks, and we have incorporated climate change considerations into our collateral framework. currency swap lines are vital instruments in helping to reduce volatility, but they too have a geopolitical impact as they can strengthen the dynamics of major international currencies. 10 4 / 6 bis - central bankers'speeches and given the dominance of non - european digital payment firms, the launch of a digital euro would protect the strategic autonomy of european payments and monetary sovereignty, providing a fall - back solution if geopolitical tensions intensify. 11 conclusion let me conclude. policymakers today are grappling with new kinds of risks. while the best - case scenario would be for policymakers to work together to prevent these risks from materialising, we need to be prepared for a " second - best " world. that will be a world marked by higher levels of uncertainty and volatility, and it will create tensions for central banks that we will have to resolve. but at the same time, i am reminded of the words of the croatian poet antun branko simi : " man, be careful not to walk small under the stars. " policymakers are not prisoners of fate, and there is scope for action. we can find balanced ways to move forwards – ways that account for the new environment, but that also allow us to continue delivering on our mandate. 1 from ivan gunduli's play " dubravka ". the phrase can be translated as " oh beautiful, oh dear, oh sweet freedom ". 2 federle, j. et al. ( 2024 ), " the price of war ", discussion paper series, no dp18834, centre for economic policy research, 14 february. 3 d'orazio, a., ferriani, f. and gazzani, a. ( 2024 ), " geoeconomic fragmentation and firms'financial performance ", voxeu, 18 march. 4 swiss re group ( 2024 ), " new record of 142 natural catastrophes accumulates to usd 108 billion insured losses in 2023, finds swiss re institute ", press release, 26 march. 5 kotz, m. et al. ( 2023 ), " the impact of global warming on inflation : averages, seasonality and extremes ", working paper series, no 2821, ecb, frankfurt am main, may. 6 burzyski, m. et al

. this is essentially the approach the ecb has been using since march last year, when we deployed a three - sided reaction function to make our decisions more robust : a forward - looking component – our inflation projections – and two more current - looking ones, the dynamics of underlying inflation and the strength of monetary policy transmission. 3 / 6 bis - central bankers'speeches we have also made more use of scenario analysis to help us understand the risks around our projections if certain assumptions turn out differently. this framework served us well in calibrating when to stop raising rates, how long to hold them constant and, most recently, when to start cutting them. and for the time being, we will continue to use it to set the rate path in an uncertain environment. the second tension is between independence and interdependence. central banks make decisions independently, but those decisions are interdependent with the actions of other authorities. when policies are well aligned, that interdependence can lead to virtuous circles which help all authorities deliver on their objectives. for example, increasing government investment to reduce energy supply constraints may make medium - term inflation lower and less volatile. that would, in turn, warrant lower policy rates over time, encouraging more investment, and so on. but faced with " existential " risks like geopolitical conflict and climate change, it is natural for people to ask whether central banks can contribute more explicitly. in my view, the answer to this question has two parts. first, the evidence we have so far suggests that the new types of shocks we are facing are likely to put upward pressure on prices, at least initially. one recent study based on data since 1900 finds that geopolitical risks lead to high inflation, lower economic activity and a fall in international trade. 9 and climate change is likely to initially appear as a negative supply shock – although over time investment in renewables, grids and storage will lead to lower and more stable energy prices. in this setting, it is important that we continue to focus on inflation and stabilise inflation expectations at our target. we know that the public detests high inflation, and allowing it to become embedded in the economy would disrupt our politics and undermine all other geopolitical and climate goals. however – and this is my second point – as a changing climate and geopolitical fragmentation have implications for our mandate, there is scope for action within our mandate. let me give you a few examples. the