GREEN MONETARY POLICY: CAN CENTRAL BANKS BALANCE CLIMATE RISKS AND PRICE STABILITY?

Abstract

The intersection of climate change and monetary policy has become a central theme in contemporary economic debates. As climate-related risks intensify, central banks face increasing pressure to integrate environmental sustainability into their policy frameworks. This article explores the concept of green monetary policy and examines whether central banks can effectively balance climate risk mitigation with their traditional mandate of price stability. Drawing on global experiences from the European Central Bank (ECB), the Bank of England, and emerging market economies, the study analyzes policy tools such as green quantitative easing, climate-related collateral frameworks, and sustainable finance incentives. The article further evaluates the potential trade-offs between inflation control, financial stability, and long-term environmental objectives. Ultimately, it argues that while central banks play an important supporting role, climate mitigation should not compromise their primary mandate. Instead, a coordinated approach involving fiscal policy, financial regulation, and international cooperation is essential to ensure that green monetary policy enhances resilience without undermining credibility.