Greening Monetary Policy: Evidence from the People’s Bank of China

January 9, 2022Published by Banque de France

The decision by the People’s Bank of China (PBoC) to accept green bonds as collateral against bank loans resulted in a significant and persistent reduction to the yields of those bonds, according to this paper from researchers at the Banque de France.

The PBoC began accepting green bonds as collateral for its medium-term lending facility in 2018, favouring green bonds against non-green equivalents. The researchers measured the spread between green and non-green bonds, and found that the spread increased by 46 basis points after the reform. The impact became visible after three weeks, had a maximum effect after three months, and had a persistent effect over six months.

The researchers state that their approach is likely to be particularly accurate because they compare bonds with similar characteristics and issued by the same firm.

Since the publication of the paper, analysts have predicted a sharp rise in the issuance of green bonds in China, boosted by the PBoC’s green monetary policy programmes.

This page was last updated February 9, 2022

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