jens weidmann : what role should central banks play in combating climate change? remarks by dr jens weidmann, president of the deutsche bundesbank and chair of the board of directors of the bank for international settlements, at the ilf online - conference “ green banking and green central banking : what are the right concepts? ”, goethe university frankfurt, 25 january 2021. * * * 1 introduction ladies and gentlemen, i would have been only too happy to meet you all in person. even more so, as from my office it would only have been a short walk to the campus of the goethe university. and allow me the following side remark : there can hardly be a better person to name a university after than johann wolfgang von goethe. goethe combined many disciplines and subjects, and not just as a poet, dramatist, novelist and critic. he also conducted research in various natural sciences, studying minerals, plants, human anatomy and meteorology, to name a few. and let ’ s not forget that he reflected on the nature of money, even serving as finance minister in the duchy of saxe - weimar - eisenach, a small, former state in what is now thuringia. goethe seems to be a true all - rounder, able to turn his hand to any number of things. some would like to see central banks in a similar role. in their view, not only are we supposed to ensure price stability, help with supervising banks and safeguarding financial stability, foster growth or promote employment. some also expect central banks to act as a rapid response unit for every economic crisis, keep sovereign financing costs low or provide savers with adequate interest rates. recently, another item has been added to the wish list : we are being called upon to assume an active role in climate policy. one thing is clear : climate change presents a challenge for all of humanity. the swiss playwright friedrich durrenmatt wrote in an appendix to his play the physicists : “ what concerns everybody can only be solved by everybody. ” therefore, every institution is right to ask itself what contribution it can make to mitigating climate change within the remit of its mandate. 2 dealing with climate - related risks the mandates of central banks and financial supervisors vary, but they typically include price stability, financial stability and the soundness of financial institutions. climate change and climate policies can affect all of these mandates, as they may have an impact on macroeconomic and financial variables such as output, inflation

services. and on activity, we avoided recession last year with 0. 7 % growth, and will again avoid it this year. but the somewhat disappointing gdp stagnation in q4 published yesterday confirms that risks on growth are clearly tilted to the downside. with such a “ disinflationary slowdown ”, the direction of the travel is clear : our monetary policy will go from restrictive towards neutral, and should support a gradual recovery while ensuring inflation is at our target. how fast and how far should we go in this travel? this is where what i call “ agile pragmatism ” and our data driven approach will guide us. i don ’ t want to bother you today with a sophisticated discussion about the precise level of r * … furthermore, long term yields have increased, limiting the easing of overall financial conditions. ii. a more challenging view on long - term yields a ) unusual divergence between short and long - term rates the ecb, since last june, and the us federal reserve, since last september, began a rate cutting cycle and both have reduced their policy rates by 100 bp last year. but over the same period longer term yields have increased, particularly in the us which is very unusual compared to previous easing cycles. the us 10 - year yield is now up by more than 80 basis points since the fed started cutting rates and the so - called “ trump trade ” began while previous easing phases were initially associated with a fall in long yields. page 3 sur 6 in the euro area, long - term rates have also increased but to a lesser extent and the us 10 - year spread relative to ea ois has risen by 80 bps over the same period. b ) what can explain this rise in long yields? the sovereign debt trajectories and the elevated global policy uncertainties are likely the two main factors. fiscal deficits remain high in many advanced economies ( us, uk, fr ) ; even in germany, fiscal policy might become more expansionary after the elections. uncertainty about the trajectory of public finances is putting upward pressure on sovereign yields. macroeconomic factors are also at play, even though quite differently on both sides of the atlantic. in the us, the risk of future trade restrictions and possibly immigration policies keep uncertainty about the outlook and inflation high, directly affecting risk premia. in the short run, these measures are akin to negative supply shocks and likely to be inflationary, before possible reversal in the longer run as aggregate demand could weaken