klaas knot : monetary policy responses to the corona crisis introductory remarks by mr klaas knot, president of the netherlands bank, at the eurofi financial forum, berlin, 11 september 2020. * * * a framework for central banks to assess the appropriateness of their policy decisions usually has three dimensions : necessity, effectiveness and side effects. it is important to view these dimensions in conjunction, as there are usually trade - offs involved, which may differ over time. in my introduction, i will elaborate on the dimensions and trade - offs in the current monetary policy setting. the necessity of continued monetary policy support follows from the mandate of the ecb, which states that price stability is the primary objective. it is beyond doubt that the extended monetary policy measures since mid - march have been needed to support monetary transmission and help the economy establish a foothold in the lockdown. this has contributed to avoid worst case scenarios and deflationary threats. the monetary policy responses to the corona crisis have clearly been effective. the ecb responded forcefully by employing a multitude of instruments, including the new pandemic emergency purchasing program. this has been effective in limiting the fall - out from the financial market stress and preserve the loose monetary conditions. moreover, the targeted ltros have been effective in safeguarding banks ’ funding liquidity. thereby, the emergency monetary policy measures have been an effective circuit - breaker to prevent bad equilibria. as we have moved to the recovery phase, the focus of the monetary measures has shifted to supporting inflation, by maintaining accommodative monetary and financial conditions. however, broad and encompassing policy response is important to ensure that we don ’ t rely overly on individual measures that could be subject to unintended side effects if they are kept in place for too long. for example, if central bank support remains in place for a prolonged period of time, debts accumulate and asset prices are further stimulated, posing risks to financial stability. instead, a sustainable recovery from the crisis also requires sufficiently productive public and private sector investments. and structural reforms that foster the creation of new firms, while non - viable firms are wound - down in an orderly fashion. though this can be a painful process for some sectors, the economy has to adjust to a world that might have structurally changed. monetary policy can maintain appropriate financial conditions to help the economy adjust, but other policy authorities will have to set the adjustment in motion. the eu recovery fund has the potential to contribute to this, if it

that public investment is linked as tight as possible to our climate goals, or more generally to the sdg ’ s. secondly, state aid measures – there are certain sectors in the economy, let me mention aviation that will qualify for state aid. it would be a historic error if we were not to make this aid conditional upon them moving towards a more sustainable future. there is a clear example, after the financial crisis in 2008, president obama made state aid to car manufactures dependent on them moving towards the electrification of motor cars. that is an example that could now be leveraged on and can be used much more widely. third, the pricing of co2 exposures. this has already been pointed out over the last years many, many times, but it is now more important than ever. what we see is that the ets price in european union has now decreased 30 %. as of course economic activity has decreased, emissions have decreased as a consequence and therefore demands of emission rights have decreased as well. hence this decrease in price. what we need to do is give co2 pricing more teeth. we could think of a floor in the carbon price, we could lower the allowed emission ceilings, we could strengthen the market stabilization mechanism. and we should also phase out harmful subsidies that in fact subsidize carbon intensive sectors, while what we need to do is the exact opposite. turning now to the work of the network for greening the financial system. there are 65 central banks and supervisors from all over the world who are members of the ngfs and there are 12 observers that are doing much more than just observing ; they are very active. the imf, world bank, bis, oecd and many more. what the membership of 65 in practice means is that three quarters of all the worlds systemically relevant banks, two thirds of all the big insurance undertakings, are being supervised by the membership of the ngfs. this gives us tremendous leverage on the financial sector. the members have a large set of instruments to ensure that what is being said is also being done. the ngfs will soon release several reports that will help our community of central banks and supervisors take the necessary measures to foster a greener financial system. one is a guide for supervisory practices. we have looked around the ngfs membership and beyond at what supervisors are now already doing in terms of how they supervise financial institutions on ways of managing their climate - related and environmental risks. we have compiled in this guide best