Author(s): Alejandro Díaz de León
Date published: Jul 2021
SUERF Policy Brief, No 120
by Alejandro Díaz de León1
Governor, Banco de México
Keywords: Climate change, financial risks, financial stability, emerging markets, LDCs.
Download: SUERF Policy Brief, No 120 (0.38 MB)
Since the Avian Flu or the old-SARS episodes there was awareness that another pandemic event would happen sooner or later. Nonetheless, we were clearly not ready for the challenges Covid-19 entailed and this resulted in an unprecedented shock for the global economy. The Covid pandemic is a cautionary tale, we must enhance our resilience in face of the imminent climate-change shocks. The probability of climate risks materializing is high, even though the timing is uncertain. There is little time to act, to increase resilience and prepare to better manage these risks.
Let me highlight two points:
When we are thinking about how to address the key problems there are two issues:
In terms of the challenges to which we are exposed to, I think that in small/medium open emerging economies like Mexico, we have traditional channels of contagion from external shocks, but now climate change is also increasing the number of risks, in four dimensions:
These factors entail large shocks on key economic sectors, can alter financial conditions, and disrupt asset prices and financial stability. These risks can have significant direct, indirect and contagion effects that need to be addressed promptly.
Actually, there is research currently being done at Banco de Me xico to understand these complex interactions, and in particular, on the interplay between transition risks in different climate scenarios and its impact on financial institutions and financial stability. We have highly granular data that allows this research to move forward. It basically shows that the interconnectedness and common exposures of financial intermediaries are relevant and might significantly increase the size of the initial shock to asset prices. So clearly, we know the amplifying effects of some these shocks.
Now let me go to the second issue. We need to create better international conditions to mobilize and accelerate investments in low carbon activities, especially in emerging markets and less developed countries for the following four reasons:
In this concrete domain I will focus on two issues: on our financial sector and on the international level. In our financial sector we need to:
And in terms of what international fora can do:
About the author
Alejandro Díaz de León-Carrillo is an economist, he began his career at Banco de México in 1991, where he held different positions, including Macroeconomic Analysis director, and Economic Studies director. In October 2007 he was appointed general director of the National Pension Fund of State Workers, then he was appointed the head of the Debt Management Office at Mexico’s Ministry of Finance from January 2011 to November 2015, where he was in charge of the government’s internal and external financing and the oil hedging strategy. He was later appointed general director of Mexico’s Export-Import Bank (BANCOMEXT). After being nominated by Mexico’s President and confirmed by the Senate, in January 1st 2017 he became part of Banco de México’s governing board as deputy governor. He was appointed by Mexico’s President to serve as governor of Banco de México from December 1, 2017 to December 31, 2021.
SUERF Policy Briefs (SPBs) serve to promote SUERF Members’ economic views and research findings as well as economic policy-oriented analyses. They address topical issues and propose solutions to current economic and financial challenges. SPBs serve to increase the international visibility of SUERF Members’ analyses and research. The views expressed are those of the author(s) and not necessarily those of the institution(s) the author(s).
Editorial Board: Ernest Gnan, Frank Lierman, David T. Llewellyn, Donato Masciandaro, Natacha Valla.
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