remarks by javier guzman calafell, deputy governor at the banco de mexico, at the panel on “ developing sustainable capital markets : mapping the challenges and setting priorities ”. omfif – dz bank, washington, dc, october 19, 2019. 1 i thank the organizers for the invitation to participate in this panel. mainly as a result of increasing carbon dioxide and other greenhouse gas emissions that have come about as a byproduct of economic activity at large, but particularly in sectors heavily reliant on fossil fuels, global temperatures are at present higher relative to pre - industrial levels, and are projected to rise further in coming decades. in addition to the environmental, health and broader welfare costs that such damage is already impinging, climate - related risks are among the main threats faced by the world in the medium - to longrun, especially in view of scenarios with potentially catastrophic and irreversible consequences, which are currently envisaged as plausible. given the complex and multidimensional nature of the issue at hand, as well as the extensive and, to a significant degree, unknown ramifications that may ensue, any sensible proposal with realistic chances to effectively contribute to a solution must contemplate the simultaneous and coordinated action of diverse, albeit complementary, policy tools. in addition, even though unilateral efforts at the domestic level are essential, international cooperation is needed to successfully overcome these challenges. why is the involvement of central banks in these issues important? the views and opinions expressed in this document are the sole responsibility of the author and do not necessarily represent the institutional position of the banco de mexico or of its board of governors as a whole. to start with, climate change is expected to have substantial macroeconomic consequences in coming decades, as it will adversely affect output in a number of sectors. the most severe impact will fall on climate - sensitive sectors, such as agriculture, forestry, coastal real estate and tourism. this may also be reflected on global inflation, to the extent that agricultural and other prices fluctuate more widely, as a result of more frequent and more severe extreme weather events. it is also worth noting that although vulnerabilities vary across countries, those that will likely be most exposed to these risks are among the group of developing economies, in view of the sectoral composition of their gdps, their geographical location, their poverty levels and a more limited capacity to adapt. average estimates of the impact of a 3 degrees celcius

by annual nominal gdp. the rate of interest on broad money is a stock - weighted average of interest rates across the sectoral components of m4. these are based on annual averages of divisia rates of return back to 1977. prior to this they are based on data from thomas and dimsdale ( 2017 ) derived in part from estimates by billings and capie. it may be that, in the latter part of this period, the very rapid growth of banks ’ balance sheets – which was even more marked if you include their overseas balance sheets – was telling us something about the build - up of risks in the banking system. financial crises are often preceded by rapid growth in measures of credit and, as we now know, that 2004 - 2007 period saw a significant worsening in the quality of banks ’ assets and, on the liabilities side of their balance sheets, a sharp fall too in the share of loss - absorbing equity that funded them. for my part, i ’ m sceptical that higher interest rates would have done much to stem this. nor, of course, did ( or does ) the mpc have a financial stability objective. what is clear is that rapid growth of broad money over that period did not cause or presage rapid inflation. to have succumbed to too crude an interpretation of the monetary aggregates, by tightening policy aggressively in response to strong m4 growth, would have led to a material undershooting of the inflation target. rightly, that was not the view taken by the mpc at the time. this long expansion in bank deposits, relative to gdp, ended at around the time of the financial crisis. changes in the structure of the financial system – in particular the partial shift away from bank lending and towards non - bank finance – may have had something to do with this. more fundamentally, the spread between interest rates on deposits and yields on competing securities became more stable. in addition, underlying growth in productivity and economic activity also slowed notably. all these things combined to slow the rate of growth of broad money, notwithstanding the rapid expansion of the central bank ’ s balance sheet. the rise in broad money during the pandemic and the current inflation so the lesson of history is that most movements in broad money occur independently of variations in the size of the central bank ’ s balance sheet. nor are many of them driven by exogenous changes in supply with no accompanying shift in the demand for money. they ’ re not necessarily friedman ’ s “