Bundesbank's Weidmann Says Climate Goals 'Overburden' Central Banks

Central banks cannot be expected to play the role of a crisis fighter for the climate, Bundesbank President Jens Weidmann said Tuesday, adding that involving excessively in such issues could risk their independence.

“A monetary policy that explicitly pursues environmental goals threatens to become overburdened,” the German central bank chief said in a speech in Frankfurt.

“And in the long term, their independence could be called into question.” Weidmann thus adopted a stance that is in opposition to the European Central Bank President designate Christine Lagarde who plans to explore sustainable finance measures such as buying green bonds under the central bank’s asset purchase scheme. Lagarde is set to replace Mario Draghi as ECB President, when his term ends on October 31.

“I see demands for a green monetary policy, for example in the form of a “Green QE” or a targeted privilege within the collateral framework, very critically,” Weidmann said. “These [Climate Change] are political issues that have to be answered by elected governments and parliaments. Such decisions should not be made by central banks, because they are not democratically legitimized,” he added. Further, Weidmann pointed out that moves such as buying green bonds for preference would contradict “market neutrality”. The policymaker also warned of conflicting goals once the ECB decides to stop or reduce asset purchases. At that time, there would be calls to continue green bond buying, he said. “Bond purchases should be limited to exceptional situations in Eurosystem monetary policy and should by no means become a permanent instrument,” Weidmann said. Central banks can make a contribution to a more sustainable financial system, the central banker said. “Green finance can complement but not replace good and smart climate policy,” he concluded. “It is and remains the task of the democratically legitimized politics to determine the necessary change and to overcome the crisis.”

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