Dawn chorus: Could central banks buy green bonds to deal with climate change?

Bank of Japan set to lend at 0% to banks lending to climate projects and buy foreign green bonds with its foreign reserves; Could we do similar here?; Chaos on UK's 'freedom' day


TLDR & TLDL: Westport is still under water this morning after the Buller River had its worst flood ever, while Germany is still in shock after its ‘jahrhunderflut’ (one in a hundred year flood) killed hundreds and destroyed thousands of homes. Today I take a closer look below at how central banks could (and are) addressing climate change.

Meanwhile, in the news today, Britain is going ahead today with its ‘freedom day’ end of Covid restrictions, even though three of its cabinet are in self-isolation. Businesses predict logistics chaos with half a million staff still in isolation. New Zealand’s Michael Baker joined a group of 1,200 scientists calling on Britain to reverse its decision.

Scoops and news breaking this morning

Just briefly in the global political economy

‘A pandemic of the unvaccinated’ - Covid cases are spiralling higher in Britain, Europe and America as the delta strain takes hold. The director of the US Centre for Disease Control said over the weekend America now faced a pandemic of the unvaccinated, especially in mostly-Republican-run states where vaccination rates are low. US President Joe Biden blamed misinformation spread by social networks. (AP)

“They’re killing people . . . - The only pandemic we have is among the unvaccinated and they’re killing people.” Joe Biden when asked about Facebook’s role in misinformation spread about vaccines.

A Green German Chancellor? - In the wake of massive floods blamed on climate change. Germany’s Greens are set to do well at national elections in September with their leader, 40-year old Annalena Baerbock, polling high in the contest to be Chancellor. (FT-$$$) Climate politics are not dominant in Aotearoa-NZ yet, but they are elsewhere, including in Australia, where the last five changes of prime ministers were due to climate issues.

Bitcoin being pushed into the shadows - Regulators are progressively cracking down on the tools used by cryptocurrencies to connect with the world of fiat currencies. Binance, the world’s largest cryptocurrency exchange, is the latest target. Late on Friday regulators in Lithuania and Hong Kong warned against using its stock tokens trading programme. Binance announced it would close the programme. British, Italian and German regulators have also cracked down on Binance.

The big picture: There’s a battle going on for who or what will control the future of transactions and ‘safe’ stable assets globally. Crypto supporters see the fiat currencies as corrupted by US$30t of money printing over the last 15 years that will inevitably devalue US$ assets. They also see an opportunity to make transactions cheaper, safer and more disconnected from the whims of Governments, central banks and banks.

But central banks are actively looking to shut down the connections between the bitcoin world and the fiat world, regulating and shutting down exchanges and getting private banks to close the accounts of those using bitcoin. Central banks are also actively looking to build their own versions of electronic currencies, as much to fend off the privately-run ‘stable-coins’ set up by tech giants such as Facebook that are linked to fiat currencies. Here’s my explainer on this via The Spinoff from last month.

Today’s big idea: Addressing climate change with green bonds

Central bank loans at 0% for green projects - The Bank of Japan announced late on Friday it would provide 0% loans to banks that finance climate change projects and would also use its US$70b of foreign reserves to buy green bonds itself overseas. (Reuters) The move would increase demand for green bonds global. The central bank is still printing to keep both short and long term interest rates at 0% and also lowered its growth forecast as Japan grapples with widespread Covid outbreaks.

The Reserve Bank here has also started talking about running monetary and financial stability policy with an eye on climate change. It currently offers special loans at the Official Cash Rate of 0.25%, which ASB and ANZ have dedicated to use for loans on new builds. This ‘Funding For Lending’ facility is still open, despite the bank’s decision last week to stop its money printing for bond buying.

The Big Idea - There are huge opportunities for the Crown itself, plus Kainga Ora and Waka Kotahi to issue green bonds to fund climate friendly housing and public transport. The demand globally and here will be enormous. The main restraint at the moment is the Public Finance Act, which was written in 1989 when interest rates were high, savings were scarce and ‘bond vigilantes’ ruled the world.

Both main parties strongly adhere to the PFA’s core directive for the Government to reduce debt, except in cases of global financial and local natural disasters. I would argue our housing and climate change challenges are both emergencies. For example, how would the Government fund the relocation of Westport?

Useful longer reads and other views

Chart of the day

Some fun things