Contending views on the role of central banks in the age of climate change: a review of the literature

Central banks, part of academia and civil society organisations increasingly acknowledge that climate change poses significant threats to monetary and financial stability. However, their theoretical frameworks and ensuing proposals are often at odds with each other. The wide range of proposals has resulted in a rapidly growing yet difficult-to-digest literature, especially in the post-Global Financial Crisis context, in which central banks' practices are being reshaped independently of climate change. In this context, the goal of this chapter is to provide a comprehensive overview of the literature on the role of central banks in the face of ecological challenges, in particular climate change. We identify four contending views that emphasise respectively: (i) the relative irrelevance of central banks' actions with regard to ecological issues; (ii) their ability to act within their mandates of price and financial stability; (iii) the proactive stance they could take to steer the economy toward low-carbon activities (and potentially other ecologically-related goals); (iv) an evolutionary view through which the relevance of central banks' actions can only be understood in the light of broader institutional transformations. We assess these four views by discussing the respective theoretical frameworks that underpin them and the main proposals that emanate from them, as well as the debates to which they have led. Through this comprehensive literature review, the chapter aims to provide insights into possible futures of central banking in the age of climate change and other ecological challenges, without advocating for any avenue in particular.