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Will we do whatever it takes
to tackle climate change?
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I come at this question
not as a green campaigner,
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in fact, I confess to be rather
hopeless at recycling.
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I come at it as a professional observer
of financial policy making
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and someone that wonders
how history will judge us.
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One day,
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this ring that belonged to my grandfather
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will pass to my son, Charlie.
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And I wonder what his generation
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and perhaps the one that follows,
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will make of the two lives
this ring has worked.
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My grandfather was a coal miner.
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In his time,
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burning fossil fuels for energy
and for allowing economies to develop
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was accepted.
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We know now that that is not the case
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because of the greenhouse
gases that coal produces.
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But today,
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I fear it's the industry in which I work
that will be judged more harshly
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because of its impact on the climate --
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more harshly than
my grandfather's industry, even.
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I work, of course,
in the banking industry,
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which will be remembered
for its crisis in 2008 --
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a crisis that diverted the attention
and finances of governments
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away from some really, really
important promises,
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like promises made at the Copenhagen
Climate Summit in 2009
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to mobilize 100 billion dollars a year
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to help developing countries
move away from burning fossil fuels
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and transition to using cleaner energy.
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That promise is already in jeopardy.
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And that's a real problem,
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because that transition
to cleaner energy needs to happen
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sooner rather than later.
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Firstly,
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because greenhouse gases, once released,
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stay in the atmosphere for decades.
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And secondly,
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if a developing economy builds
its power grid around fossil fuels today,
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it's going to be way more costly
to change later on.
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So for the climate,
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history may judge
that the banking crisis happened
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at just the wrong time.
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The story need not be this gloomy, though.
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Three years ago,
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I argued that governments
could use the tools
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deployed to save the financial system
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to meet other global challenges.
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And these arguments are getting
stronger, not weaker, with time.
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Let's take a brief reminder
of what those tools looked like.
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When the financial crisis hit in 2008,
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the central banks of the US and UK
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began buying bonds issued
by their own governments
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in a policy known
as "quantitative easing."
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Depending on what happens
to those bonds when they mature,
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this is money printing by another name.
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And boy, did they print.
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The US alone created four trillion
dollars' worth of its own currency.
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This was not done in isolation.
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In a remarkable act of cooperation,
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the 188 countries that make up
the International Monetary Fund, the IMF,
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agreed to issue 250 billion
dollars' worth of their own currency --
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the Special Drawing Right --
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to boost reserves around the world.
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When the financial crisis moved to Europe,
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the European Central Bank
President, Mario Draghi,
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promised "to do whatever it takes."
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And they did.
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The Bank of Japan repeated those words --
that exact same commitment --
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to do "whatever it takes"
to reflate their economy.
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In both cases,
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"whatever it takes" meant
trillions of dollars more
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in money-printing policies
that continue today.
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What this shows
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is that when faced
with some global challenges,
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policy makers are able to act
collectively, with urgency,
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and run the risks of unconventional
policies like money printing.
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So, let's go back
to that original question:
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Can we print money for climate finance?
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Three years ago,
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the idea of using money in this way
was something of a taboo.
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Once you break down and dismantle the idea
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that money is a finite resource,
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governments can quickly get overwhelmed
by demands from their people
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to print more and more
money for other causes:
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education, health care, welfare --
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even defense.
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And there are some truly terrible
historical examples of money printing --
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uncontrolled money printing --
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leading to hyperinflation.
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Think: Weimar Republic in 1930;
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Zimbabwe more recently, in 2008,
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when the prices of basic goods
like bread are doubling every day.
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But all of this is moving
the public debate forward,
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so much so, that money printing
for the people is now discussed openly
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in the financial media, and even
in some political manifestos.
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But it's important the debate
doesn't stop here,
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with printing national currencies.
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Because climate change
is a shared global problem,
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there are some really compelling reasons
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why we should be printing
that international currency
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that's issued by the IMF,
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to fund it.
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The Special Drawing Right, or SDR,
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is the IMF's electronic unit of account
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that governments use to transfer
funds amongst each other.
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Think of it as a peer-to-peer
payment network,
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like Bitcoin, but for governments.
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And it's truly global.
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Each of the 188 members
of the IMF hold SDR quotas
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as part of their foreign
exchange reserves.
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These are national stores of wealth
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that countries keep to protect
themselves against currency crises.
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And that global nature is why,
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at the height of the financial
crisis in 2009,
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the IMF issued those extra
250 billion dollars --
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because it served
as a collective global action
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that safeguarded countries
large and small in one fell swoop.
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But here --
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here's the intriguing part.
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More than half of those extra SDRs
that were printed in 2009 --
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150 billion dollars' worth --
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went to developed market countries
who, for the most part,
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have a modest need
for these foreign exchange reserves,
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because they have flexible exchange rates.
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So those extra reserves
that were printed in 2009,
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in the end -- for developed
market countries at least --
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weren't really needed.
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And they remain unused today.
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So here's an idea.
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There's a first step.
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Why don't we start
spending those unused --
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those extra SDRs
that were printed in 2009 --
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to combat climate change?
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They could, for example,
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be used to buy bonds issued
by the UN's Green Climate Fund.
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This was a fund created in 2009,
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following that climate
agreement in Copenhagen.
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And it was designed to channel funds
towards developing countries
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to meet their climate projects.
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It's been one of the most
successful funds of its type,
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raising almost 10 billion dollars.
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But if we use those extra
SDRs that were issued,
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it helps governments get back on track,
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to meet that promise
of 100 billion dollars a year
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that was derailed by the financial crisis.
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It could also --
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it could also serve as a test case.
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If the inflationary consequences
of using SDRs in this way are benign,
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it could be used to justify
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the additional, extra-issuance
of SDRs, say, every five years,
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again, with the commitment
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that developed-market countries
would direct their share
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of the new reserves
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to the Green Climate Fund.
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Printing international money
in this way has several advantages
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over printing national currencies.
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The first is, it's really easy to argue
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that spending money to mitigate
climate change benefits everyone.
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No one section of society benefits
from the printing press over another.
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That problem of competing
claims is mitigated.
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It's also fair to say
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that because it takes so many countries
to agree to issue these extra SDRs,
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it's highly unlikely that money printing
would get out of control.
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What you end up with
is a collective, global action
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aimed -- and it's controlled
global action --
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aimed at a global good.
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And,
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as we've learned
with the money-printing schemes,
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whatever concerns we have
can be allayed by rules.
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So, for example,
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the issuance of these extra SDRs
every five years could be capped,
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such that this international currency
is never more than five percent
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of global foreign exchange reserves.
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That's important because it would allay --
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well, let's say the ridiculous
concerns that the US might have
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that the SDR could ever challenge
the dollar's dominant role
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in the international finance.
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And in fact,
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I think the only thing that the SDR
would likely steal from the dollar
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under this scheme
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is its nickname, the "greenback,"
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because even with that cap in place,
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the IMF could have
followed up its issuance --
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its massive issuance of SDRs in 2009 --
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with a further 200 billion
dollars of SDRs in 2014.
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So hypothetically,
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that would mean that developed countries
could have contributed
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up to 300 billion dollars' worth of SDRs
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to the Green Climate Fund.
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That's 30 times what it has today.
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And you know,
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as spectacular as that sounds,
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it's only just beginning to look
like "whatever it takes."
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And just to think what amazing things
could be done with that money,
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consider this:
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In 2009,
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Norway promised one billion dollars
of its reserves to Brazil
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if they followed through
on their goals on deforestation.
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That program has since delivered
a 70 percent reduction in deforestation
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in the past decade.
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That's saving 3.2 billion tons
of carbon dioxide emissions,
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which is the equivalent of taking
all American cars off the roads
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for three whole years.
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So what could we do
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with 300 other pay-for-performance
climate projects like that,
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organized on a global scale?
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We could take cars off the roads
for a generation.
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So,
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let's not quibble about whether we can
afford to fund climate change.
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The real question is:
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Do we care enough about future generations
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to take the very same policy risks
we took to save the financial system?
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After all,
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we could do it,
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we did do it
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and we are doing it today.
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We must, must, must do
"whatever it takes."
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Thank you.
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(Applause)