Working Paper: Climate-related risks -- Analysis Based on the Functions of Central Banks
The People's Bank of China published a new working paper on May 22, entitled “Climate-related risks -- Analysis Based on the Functions of Central Banks”.
Climate-related risks are characterized by low probability and great loss, which can easily cause structural changes. Climate-related risks can be divided into physical risks and transition risks. Both impact economic variables and financial stability through financial institutions balance sheets, market liquidity, disorderly revaluation of asset prices, and uncertainty of green investment income expectation. Climate and macroeconomic policies should coordinate with each other to prevent or deal with climate risks. There is still controversy over whether central banks should incorporate climate considerations into monetary policy and prudential regulatory frameworks. We can improve the identification, early warning and forward-looking responses to climate-related risks by building methodologies and tools, promoting the implementation of a unified green standard, and encouraging financial institutions to incorporate climate-related risks into risk management frameworks, etc.
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