Is Net-Zero Central Banking Possible in the Caribbean?

This chapter, the first to our knowledge, examines whether central banks in Caribbean small island states have the necessary legal and institutional frameworks to achieve the global central banking community’s pledge to contribute to net-zero and safeguard financial stability from climate change. We find that the legal mandates of the central banks studied do not extend to climate change or sustainability. However, climate-related risks, if qualified as financial risks, fall within their financial stability mandate. Further, the path to net-zero is limited by the existing internal capacity of central banks, which is not geared towards climate science. This is not surprising since climate change has fairly recently moved beyond the acceptable risk tolerance of central banks, and only now is a response being fashioned. We argue that the region faces a high boundary risk with respect to net-zero. We note that even if Caribbean central banks are equipped with a mandate and policy tools to address climate change, net-zero may still not be achievable where climate change public policies are absent or not fully articulated. Further, Caribbean economies carry a heavy weighting to climate-sensitive or carbon-relevant sectors. Hence, net-zero may only be achieved with the involvement of committed governments.