Revisiting central bank independence for the climate era: insights from the People's Bank of China

Climate change has become a concern for central banks, at least rhetorically. Questioning whether the banks walk the talk, a proliferating research agenda covers mandates, motives, expertise, and independence. Yet, it remains unappreciated that the only central bank with actual green monetary policies is not independent, namely, the People’s Bank of China (PBoC). Here, we explore the relation between independence and climate action through an in-depth, interview-based study of the PBoC, in comparison with the U.S. Federal Reserve, the European Central Bank, and the Bank of England. First, we find that Western central banks indirectly promote financial institutions to consider climate issues, whereas the PBoC, most centrally, directly intervenes through monetary policy. Second, by examining legal independence, mandates, and government influence, we find that independence constrains Western central banks, while non-independence forces the PBoC to act. From this, we discuss how the climate era requires revisiting central bank independence.