yves mersch : climate change and central banking speech by mr yves mersch, member of the executive board of the european central bank, at the workshop discussion " sustainability is becoming mainstream ", frankfurt am main, 27 november 2018. * * * “ grey, dear friend, is all theory, and green the golden tree of life. ” 1 goethe, j. w. ( 1808 ), faust. eine tragodie. this quote from “ faust ” by frankfurt - born johann w. goethe is already 210 years old. but it aptly sums up the current public debate on “ green finance ” – financial instruments that support solutions for climate change. indeed, governments, companies, banks and public bodies have been coming under mounting pressure from interested sections of the public to transform their strategies and make them more climate - friendly, a process sometimes disrespectfully referred to as “ green washing ”. so it is hardly surprising that loud demands are also being made for central banks to contribute towards solving the identified problems. by no means do i want to be the “ spirit, ever, that denies ”. 2 but in this concrete instance, the situation is clear : finding – or financing – the solution to the problems of climate change appears, at first glance, somewhat remote from the primary mandate of a central bank. but let ’ s turn to the present to explain this verdict in more detail. macroeconomic effects it is not enough to link to newspaper reports, nor to quote a world economic forum report, that has ranked climate risks as both high - impact and high - likelihood events3 in order to create a new mandate or objective for a central bank. 4 is there convincing evidence for us to adjust our monetary policy strategy because increased risks of more frequent and more devastating future climatic events could influence economic dynamics in the medium term, the monetary policy horizon? the non - quantified increased probability and causality in such events may only hold implications for short - term developments, which do not influence the conduct of monetary policy. one can also establish the general assumption that climate change may have more longerlasting impacts on potential output and relative prices, but these will also have less bearing on the conduct of policy. the economic literature on the impacts of climatic shocks is relatively new and less developed than for other types of economic shock. does it contain useful insights? conclusions that while the short - term impact on output is generally negative, 5 the overall impact in the medium and longer term is less certain,

there are currently 19 pds comprising 11 banks undertaking pd business departmentally and eight standalone pds. as you are aware, in view of the underwriting and market making responsibility of pds, they have been given access to current account facility and subsidiary general ledger ( sgl ) account facility ( for government securities ) with the bank, permission to borrow and lend in the money market including call money market and to trade in all money market instruments, membership of electronic dealing, trading and settlement systems ( nds platforms / infinet / rtgs / ccil ), access to the liquidity adjustment facility ( laf ) of rbi, access to liquidity support from rbi under a scheme separately notified for standalone pds and favoured access to open market operations by the reserve bank. performance of pds in primary auctions of government securities 43. the share of pds ( ratio of bids accepted from pds to the total notified amount ) in primary auctions of central government dated securities ( table 1 ) has been significant since 2006 when the bank stopped participating in primary auctions, ensuring full subscription to the government securities. table 1 : performance of pds in primary auctions of government securities ( in rs. crore ) details 2006 – 07 2007 – 08 2008 – 09 2009 – 10 * notified amount 146, 000 156, 000 261, 000 295, 000 bids submitted by pds 202, 462 254, 253 349, 393 361, 325 bids accepted of pds 64, 727 72, 122 111, 094 117, 023 1. 39 1. 63 1. 34 1. 22 success ratio 31. 97 % 28. 37 % 31. 80 % 32. 39 % share of pds 44. 33 % 46. 23 % 42. 56 % 39. 67 % bid - to - cover ratio * – till end - september 2009 source : trend & progress 2009 recent initiatives 44. in view of the enhanced borrowings by the government of india in 2008 – 09 and 2009 - 10 as part of the counter - cyclical policy in response to slowdown, structured meetings with pds and other major investors were taken up on a regular basis to obtain market feedback and exchange views on relevant issues. the major initiatives taken during the current fiscal are : i. consequent to the global financial crisis, the spread between corporate bond and government securities turned out more than 500 bps due to credit crunch in the financial markets. to enable the pds to raise