Recently, Yi Gang, governor of the people's Bank of China, gave an exclusive interview to China International Television (CGTN) on financial support for green transformation, green information disclosure, green financial international cooperation, and monetary policy.

Reporter: green transformation requires a lot of capital investment, in which the financial system can play an important role. In recent years, what measures has the people's Bank of China introduced to encourage financial institutions to support green transformation?

Yi Gang:There is a consensus in the international community that central banks can play an important and active role in the green transformation.

As far as monetary policy is concerned, the primary and most important responsibility of the central bank is to maintain price stability. That said, some central banks still have policy room to promote a green transformation through structured monetary policy.

The people's Bank of China has done a lot of work to promote the green transformation. In 2018, the people's Bank of China incorporated high-quality green bonds and loans into the scope of qualified collateral for medium-term lending facilities, and last year launched two new monetary policy tools: carbon emission reduction support tools and special re-loans to support clean and efficient use of coal. Interest rates are 1.75%, supporting qualified financial institutions to provide low-cost financing for projects with significant carbon reduction effects.

By the end of May this year, the people's Bank of China had issued a total of more than 210 billion yuan to relevant financial institutions through two instruments, leading to a reduction of more than 60 million tons of carbon dioxide equivalent, accounting for about 0.6 percent of China's annual carbon emissions.

In addition, in May last year, the people's Bank of China revised and issued the Green Financial Evaluation Program for Banking Financial institutions, which included the issuance of green loans and green bonds by financial institutions into the rating of central bank financial institutions, in order to encourage financial institutions to provide support for green transformation.

The above mechanisms contribute to the rapid growth of green financing. As of March 2022, the balance of green loans in China has exceeded 18 trillion yuan, growing rapidly. The balance of green bonds in China is about 1.3 trillion yuan, ranking first in the world.

In short, the central bank can play a role in the green transformation, and it is essential to raise awareness of the benefits of the green transformation in the whole society.

Reporter: what has the people's Bank of China done to improve the disclosure of green information and prevent counterfeiting? What achievements have been made?

Yi Gang:Information disclosure is very important and is the key to promoting green transformation. In order to implement green monetary policy tools fairly and efficiently, we should pay attention to prevent all kinds of moral hazard problems in practice, such as "washing green", low-cost capital arbitrage, green project fraud and so on. Therefore, in the whole process of designing and implementing monetary policy tools to support green transformation, it is necessary to ensure open and transparent information and strict supervision.

For example, carbon emission reduction support tools require financial institutions to publicly disclose quarterly information such as the amount of carbon reduction loans issued, interest rates, the number of supporting projects, and the number of carbon emission reductions driven by loans. The people's Bank of China will work with other departments and independent third-party professional institutions to verify the disclosure information, which is also very important for the public to know and supervise.

In order to promote the management of climate risk, the people's Bank of China conducted its first climate risk stress test last year. From the test results, inadequate disclosure of carbon emissions information is still the biggest challenge.

In order to promote climate information disclosure, the people's Bank of China issued the guidelines on Environmental Information Disclosure of Financial institutions last year, which put forward requirements on the form, frequency, qualitative and quantitative information to be disclosed, and has instructed more than 200 financial institutions to prepare environmental information disclosure reports, including the identification, assessment, management and control process of environmental risks. The information verified by third-party professional institutions on the issuance of carbon emission reduction loans and the scale of carbon emission reduction driven by them will be timely extended to the whole country in the future.

Reporter: the people's Bank of China has been actively promoting international cooperation in green finance through multilateral and bilateral platforms. What role does the people's Bank of China play in promoting the development of international green finance?

Yi Gang:In the international field, the people's Bank of China, together with all parties, actively guides market funds to support climate change response.

One is to co-lead the G20 working Group on Sustainable Finance. At the beginning of 2021, the G20 resumed the establishment of the Sustainable Finance Research Group, with the people's Bank of China and the US Treasury as co-chairs, taking the lead in the formulation and completion of the G20 Sustainable Finance Roadmap, which has become an important guide for guiding market funds to support climate change at the international level. This year, our focus is to promote the development of a financial framework for transformation and guide market funds to support high-emission industries to achieve low-carbon transformation in a safe and orderly manner.

Second, we have achieved phased results in promoting the convergence of green financial classification standards with the European side. Since 2020, the people's Bank of China and the European Commission have carried out a comparison of China-EU green classification standards, and issued the "Common Classification Catalog" in November 2021. This paper puts forward a list of 55 economic activities that are jointly recognized by their respective green financial classification standards and have made significant contributions to climate change mitigation.

On June 3 this year, the people's Bank of China and the European Commission issued an updated version of the Common classified Catalog, adding 17 items of economic activities. China and the EU take the lead in promoting the comparability and exchange of green classification standards between the two sides, which is conducive to guiding cross-border green capital flows. At present, China Construction Bank Corporation and Industrial Bank of China have issued "common classification catalogue" labeled green bonds, and the green financial classification catalogue issued by some emerging market countries also refer to the "common classification catalogue".

The third is to create a green "Belt and Road Initiative" with green finance. In 2019, under the guidance of the people's Bank of China, Belt and Road Initiative's Green Investment principles (GIP) was launched, and GIP put forward seven principles for green investment. As of May 2022, the membership of GIP has expanded to 41 signatories and 14 support agencies.

In addition, the people's Bank of China also conducts exchanges and cooperation in various fields with the central bank and regulators Green Financial Network (NGFS), the Financial Stability Council (FSB) and the Basel Committee on Banking Supervision (BCBS) to promote the improvement of green financial regulatory standards.

In the next step, the people's Bank of China will continue to promote international cooperation in green finance through multi-bilateral platforms to better serve my own goal of achieving carbon peak and carbon neutralization.

Reporter: recently, China's economy is facing some downward pressure, and the RMB has depreciated to a certain extent. What is the orientation of current monetary policy? What role will it play in supporting the national economic recovery?

Yi Gang:China's monetary policy has always been compatible with supporting the development of the real economy. Broad money M2 and social financing growth basically match the nominal GDP growth rate, maintain reasonable and abundant liquidity, and support the development of small and medium-sized enterprises to achieve the goal of maximizing employment.

China's market interest rates have fallen steadily over the past decade. The level of natural interest rate is mainly determined by the marginal output rate of capital and the long-term development trend of population.

China's interest rate formation mechanism is determined by market supply and demand, and the central bank guides the market interest rate by using monetary policy tools. At present, the interest rate on time deposits is about 1-2%, and the interest rate on bank loans is about 4-5%. At the same time, the bond and stock markets operate more efficiently. Taking into account the level of inflation, it can be seen that real interest rates are quite low and financial markets are able to allocate resources effectively.

China implements a flexible exchange rate system which is based on market supply and demand and adjusts with reference to a basket of currencies. Compared with 20 years ago, the RMB has appreciated by about 25 per cent against the US dollar and 30 per cent against a basket of currencies, and the real exchange rate has appreciated even higher.

China's inflation outlook is stable, with CPI rising 2.1 per cent year-on-year and 6.4 per cent year-on-year. Maintaining price stability and maximizing employment is the focus of our work.

Since the beginning of this year, China's economy has been under certain downward pressure due to the impact of the epidemic and external shocks. Monetary policy will continue to make headline efforts to support economic recovery. At the same time, we will also emphasize the use of structural monetary policy tools such as supporting small and medium-sized enterprises and green transformation.