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This paper discusses how central banks and financial supervisory authorities (CBFSAs) can foster green development in Asia and the Pacific. It argues that while fiscal policy has received much attention, CBFSAs can certainly play a complementary role in speeding up the transition towards low-carbon, climate-resilient economies. Indeed, CBFSAs are obliged to act as inaction could compromise their mandate of maintaining economic and price stability given that climate change poses an emerging risk to the financial system. The paper first shows that around half of Asia-Pacific central banks either have sustainability-oriented mandates or began integrating climate issues into their policy conduct. It then demonstrates that while the region remains at the early stage of green monetary and financial policies, some CBFSAs are at the forefront in deploying monetary policy tools, prudential measures, and broader initiatives to support green finance. To further promote green central banking, having clear guiding principles, effective communication, and adequate technical capacity to customize the green approach is critical. Moving forward, CBFSAs should be mindful about possible unintended, adverse impacts of sustainable central banking, such as interfering with market neutrality, supporting greenwashing, and crowding out green private investments.

 

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