Dafermos, Yannis, Gabor, Daniela, Nikolaidi, Maria ORCID: 0000-0002-8188-5482, Pawloff, Adam and van Lerven, Frank (2021) Greening the Eurosystem collateral framework: how to decarbonise the ECB's monetary policy. Technical Report. New Economics Foundation, London.

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Abstract

For some, money is the “root of all evil”, while others have suggested “money is power”. What is definitely true is that our economy simply cannot function without it. At the centre of our monetary system lies central bank money, because it is what banks use to make payments to each other. The collateral framework specifies the rules via which central banks inject money into the banking system, so that banks can make these payments. Furthermore, as modern financial markets are increasingly organised around collateral, central banks’ treatment of collateral – the terms on which they accept bonds or loans posted by banks – sends a powerful signal to private financial markets.
Central banks’ collateral rules have significant knock-on effects for monetary and financial conditions in the wider economy. The collateral framework of the Eurosystem − the European Central Bank (ECB) and the euro area national central banks − is at the heart of the ECB’s monetary policy implementation. Problematically, the rules dictating this central component to the ECB’s monetary policy operations are not fit for purpose. In its current form, the collateral framework is not only at odds with democratically defined goals of the Paris Agreement and the EU’s Green Deal, but it also actively underpins financial market failures and reinforces the carbon lock-in. It further contradicts the ECB’s own principles of strong risk standards needed for the sound implementation of monetary policy, whilst undermining the high prudential standards to which it attempts to hold private financial institutions to account.

Item Type:	Monograph (Technical Report)
Uncontrolled Keywords:	climate change; monetary policy; collateral framework
Subjects:	H Social Sciences > HB Economic Theory H Social Sciences > HC Economic History and Conditions H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management
Faculty / School / Research Centre / Research Group:	Faculty of Business Faculty of Business > Department of International Business & Economics Faculty of Business > Institute of Political Economy, Governance, Finance and Accountability (IPEGFA) Faculty of Business > Institute of Political Economy, Governance, Finance and Accountability (IPEGFA) > Greenwich Political Economy Research Centre (GPERC)
Last Modified:	01 Nov 2022 16:48
URI:	http://gala.gre.ac.uk/id/eprint/37782

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