USDA Photo by Lance Cheung.
Central bankers are a discreet lot. They have steered economies through wars, inflation shocks, pandemics, and political turmoil. On paper, Kevin Warsh cuts the figure of a classic BIS‑bred central banker—credentialed, clubbable, fluent in the language of price stability and prudence.
Publicly, the reaction to his nomination as the next chair of the Federal Reserve has been restrained and orthodox: polite talk about continuity, respect for the Fed’s independence, and close monitoring of how an “inflation hawk” might steer interest rates and the balance sheet.
In private, it is a different story, particularly among younger, more climate‑focused European officials. Warsh’s long‑standing dismissal of climate as central‑bank “contraband,” and his alignment with Donald Trump’s hostility towards clean energy, confirm for many that the world’s dominant reserve‑currency issuer will continue to opt out of the emerging architecture of climate‑aligned finance.
A new climate finance order
That is bad news for the planet—but excellent news for Beijing. China’s central bank, the People’s Bank of China (PBoC), is now systematically using its balance sheet, collateral framework, and regulatory toolkit to support the clean‑energy transition at home and in the Global South.
The core consequence is not that the renminbi (RMB) will dethrone the dollar. It is that China is building a parallel, climate-aligned financial infrastructure that can gradually carve out regional and sectoral space in global finance—especially in green infrastructure and energy—at the expense of US influence.
The Fed’s climate blind spot, now with a name
Neither outgoing Fed chair Jerome Powell nor Warsh seems particularly concerned about this Chinese Trojan horse. In Washington, the dominant view remains that climate change is macro‑relevant but not a core monetary policy remit. Chair Jerome Powell has repeatedly warned of “mission creep,” stressing that the Fed’s role is limited to ensuring banks understand and manage climate‑related risks, while broader climate policy belongs to legislators and the private sector.
The two argue that monetary systems gain legitimacy through predictability and legal clarity, not through alignment with specific policy agendas. The Fed’s restraint may appear conservative, but it preserves its credibility as an apolitical institution—something markets prize above thematic alignment.
This stance has hardened. The Fed withdrew from the Network for Greening the Financial System (NGFS), arguing the group’s agenda extends beyond its statutory responsibilities. It has pursued climate scenario analysis in a strictly “exploratory” mode, with no capital or supervisory consequences, and has resisted embedding climate objectives in its prudential or liquidity frameworks.
Warsh wants to go one step further. Speaking to a group of financial leaders last year, he warned that modern central banks have been “too willing to traffic in contraband,” adding:
“Central bankers and bandwagons should be strangers. The Fed’s long‑term success should be to focus on the time‑honored and the enduring, rather than the fashionable and the fleeting”.
Cold comfort
China can hardly believe its luck. Far from banning climate engagement, Beijing views central‑bank climate policy as core plumbing for an emerging alternative financial system pegged to its own currency rather than the US dollar.
The PBoC operates within a different institutional logic. China’s leadership has set explicit climate targets—peaking emissions before 2030 and achieving carbon neutrality by 2060—and made green industrial policy a central development priority. Within that framework, the central bank is granted wide operational autonomy to ensure that finance supports those goals.
As researchers Mathias Larsen and James Jackson argue in Green Central Banking, while central banks around the world now acknowledge climate risk, only one major central bank has translated this concern into systematic, large-scale monetary intervention in support of decarbonisation: the People’s Bank of China. Western central banks, they argue, largely “nudge” on climate risk, while the PBoC intervenes directly via monetary tools through what they call “government‑directing with operational independence.”
See a recent column by the authors in Green Central Banking
A different kind of central bank
The PBoC has never operated as a traditional, arm’s‑length central bank. Like the Communist Party‑state it serves, it is a hybrid: part monetary authority, part industrial planner, part diplomatic arm of a state‑led development model.
In China, higher-level political bodies set the strategic objectives. The PBoC decides how to use interest rates, refinancing facilities, collateral rules, and macro‑prudential tools to deliver on them.
That approach is far from the textbook model of Western central‑bank independence. Yet it has enabled the PBoC to pioneer green monetary policies that extend beyond risk measurement to deliberate credit allocation.
Importantly for central bankers, this is not presented in Beijing as an abandonment of price stability or financial soundness. It is framed as integrating climate and industrial strategy into the core functions of liquidity provision and credit steering, under a state‑led development model.
Climate‑aligned capital
In practice, the PBoC has developed three main levers that, together, tilt China’s financial system toward low‑carbon investment while supporting cross-border RMB use. These include:
- Favouring green assets in its collateral framework. Qualifying green loans can be pledged, with high-grade green bonds accepted in medium-term lending operations, ensuring banks that are going green have easier and cheaper access to central-bank liquidity.
- Embedding green performance indicators into its macro-prudential assessment (MPA) of banks. Institutions with stronger “green books” can receive more favourable regulatory treatment and lower effective funding costs. While still evolving, this framework links climate‑aligned lending to tangible supervisory and funding advantages, complementing the more traditional risk‑based perspective prevalent in advanced‑economy central banks.
- Allowing banks to refinance carbon-reduction loans at a lower rate. Launched in 2021, the Carbon Emission Reduction Facility (CERF) allows banks to refinance up to 60% of eligible carbon‑reduction loans at a highly subsidised rate, reportedly around 1.75%, well below standard policy benchmarks. This scheme has supported tens of billions of dollars in lending for clean power, energy efficiency, and low‑carbon technologies, making them a key driver of the shift toward green credit.
None of these tools, taken alone, revolutionises the global monetary system. But together, they amount to meaningful green credit guidance—anchored by the central bank—and are being tied to China’s growing international financial footprint.
RMB‑based green finance and the Global South
China’s state‑backed green-finance push is increasingly visible across emerging and developing economies. Policy banks, commercial lenders, and state‑owned enterprises are financing solar parks, grid upgrades, transport electrification, and adaptation projects across Southeast Asia, Africa, and Latin America. The PBoC’s frameworks, taxonomies, and evaluation schemes provide a template for classifying and de‑risking these investments.
On the capital‑markets side, Beijing has built what former PBoC official Ma Jun dubs the “trifecta” of RMB bond platforms—onshore panda bonds, offshore dim sum bonds, and free‑trade‑zone RMB issues—that are increasingly used for green, social, and sustainability‑linked deals. At the same time, the PBoC has rolled out a wide network of bilateral swap lines, offshore RMB clearing banks, and the Cross‑Border Interbank Payment System (CIPS), allowing a growing share of trade and finance to settle in renminbi without passing through New York’s dollar‑clearing pipes.
Although CIPS still handles only a fraction of global payment flows, its volumes have been rising at strong double‑digit rates each year, and it is now viewed as a serious, long‑term alternative rail for RMB transactions in a world looking for options beyond the dollar.
Small fish in a big pond
Today, the RMB is still a small fish among reserve‑FX giants, accounting for only around 2% to 3% of global foreign‑exchange reserves, versus roughly 60% for the dollar. But reserve share is a lagging indicator. The leading edge of change is where new capital is raised and critical infrastructure is financed. In those frontier markets, China is increasingly seen as an attractive alternative to the dollar to get climate projects from PowerPoint idea to shovels in the ground.
For Global South finance ministers juggling climate disasters, power shortages, and rising hard‑currency costs, this is not an abstract debate about the RMB becoming the new “reserve hegemon.” It is a practical choice: whose rules, whose money, and whose priorities will shape their development path.
The quiet price of US climate inertia
None of this means the renminbi will soon dethrone the dollar. The dollar’s advantages—deep markets, legal protections, political alliances—remain formidable. China’s system carries its own vulnerabilities: capital controls, governance concerns, and the ever‑present risk that political priorities trump financial prudence.
In that sense, the contest is less about “reserve currency hegemony” and more about who defines the standards, instruments, and liquidity backstops for financing the net‑zero transition. China is explicitly using its central bank to underpin a state‑led green development strategy, at home and abroad. The United States, and the Fed in particular, are signalling that such a role lies outside the proper scope of monetary authorities.
Central bankers pride themselves on seeing around corners. The question now is whether a strict, pre‑climate conception of central‑bank independence—a mandate Warsh will champion—remains sufficient in a world where climate risks and green industrial policy are reshaping growth paths, capital flows, and, increasingly, the monetary order itself.
The risk for the United States is not that the dollar disappears, but that it slowly loses influence over the fastest‑growing parts of the global economy. As the transition to clean energy accelerates and the climate crisis worsens, staying out of the game is not neutrality. It is a strategic choice—and one that increasingly plays into China’s hands.
This page was last updated February 4, 2026
Written by
Peter McKillop is the founder of Climate & Capital Media, a platform exploring the business and finance of climate change. He has previously held senior positions at BlackRock, Bank of America and KKR, and was a senior correspondent at Newsweek.
