Monetary Policy Operations and Biodiversity Loss

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“Biodiversity is declining at unprecedented rates in human history, with growing evidence that this could have significant economic and financial implications”. In this regard, biodiversity loss is very similar to climate change: both entail physical risks that could translate into substantial economic and financial losses, and mitigating them requires profound economic transformations, with important transition risks. Furthermore, the economic and financial risks associated with biodiversity loss are, like for climate change, far-reaching, foreseeable, and potentially irreversible. Finally, the magnitude of the future impact of biodiversity loss and climate change crucially depends on the actions taken by policy makers today.

Central banks have extensively studied the challenges that climate change poses to them. They have highlighted its impact on key macroeconomic variables for them, like economic growth and price stability. They have also underlined its potential threat to financial stability. Against this background, central banks have thoroughly reviewed the consequences of climate change for monetary policy operations, as well as how to adjust them to meet the challenges posed by climate change. Such a review is lacking for biodiversity loss.

This note contributes to filling this gap. It builds on the experience central banks have accumulated on the links between monetary policy operations and climate change and draws some parallels for the case of biodiversity loss. It also highlights key differences between the two and suggests measures that central banks should take to adjust their monetary policy operations to the economic and financial challenges posed by biodiversity loss.