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12 - From Market to Green Economics

Impact on Monetary and Financial Policies

from Part II - The Monetary Dimension

Published online by Cambridge University Press:  28 September 2023

By
Dirk Schoenmaker  and
Hans Stegeman
Edited by
Dariusz Adamski ,
Fabian Amtenbrink  and
Jakob de Haan
Dariusz Adamski
Affiliation:
University of Wroclaw
Fabian Amtenbrink
Affiliation:
Erasmus Universiteit Rotterdam
Jakob de Haan
Affiliation:
University of Groningen
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Summary

The ECB has already taken the step from ‘a monetary policy rule’ towards a broad central bank with monetary and financial tasks. The next step is to green these monetary and financial stability tasks. This chapter argues that a change from the prevailing ‘market economics’ paradigm to a ‘green economics’ paradigm will make this transformation effective. Sustainability challenges are complex in nature and have a long horizon. On the financial side, the ECB should ‘de-risk the financial system’ by greening its financial stability and supervision tasks. The chapter provides an overview of the new financial instruments and their application by the ECB. On the monetary side, the ECB is still adopting a two-pronged strategy: a risk approach and an allocational approach. While the risk approach fits within market economics thinking, the green economics paradigm suggests an allocational approach whereby the ECB moves from high-carbon to low-carbon assets in its monetary policy operations. The allocational approach is gaining ground.

Type
Chapter
Information
The Cambridge Handbook of European Monetary, Economic and Financial Integration , pp. 215 - 236
Publisher: Cambridge University Press
Print publication year: 2023

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