There was something in the original plans for the post-earthquake Christchurch downtown rebuild that never really made much sense. Well, there were a lot of things that never made any sense, both in the plans and in practice, and that's why a lot of business fled to the suburbs. 

But one thing in particular didn't make much sense. And some of what is currently going on in central banking brings it too quickly to mind. 

The city plan, as proposed in August 2011, set height limits downtown. The planners thought that nobody would want to live or work in a tall building after the earthquakes, so height limits applied. 

With one exception. Building designs earning at least "Five Green Star" environmental certification could be taller.

Now that plan wound up being abandoned for a lot of reasons – including that central government really did not like it. But this particular part of the plan made council's goals confusing. If lower building heights were meant to assist in helping people feel safe, would solar panels on the roof really make them seem safer? 

The plan was trying to use height rules to pursue contradictory objectives.

There's a rule about the number of targets a policymaker can try to hit with any particular policy instrument. It's called the Tinbergen rule, after the Dutch economist who argued that policymakers need at least one policy tool for each policy target. If you're trying to hit two birds with one shot, you're more likely to miss both of them than to hit either one. 

And that brings us back to some worries about central banking. 

In October, the Reserve Bank's general manager for governance, strategy and corporate relations highlighted the bank's growing focus on climate change. As part of the same press release, governor Adrian Orr noted the bank's role in "greening the financial system" and managing environment and climate-related risks. 

Some of this makes sense as part of the Reserve Bank's role in prudential regulation. If a bank's capital stock includes a lot of farm mortgages that would be underwater with a change in emissions policy, then those risks should be considered when weighing that bank's overall position. 

Of course, there are policy risks across many different sectors - just think about how Trump's tweets can affect different portfolios. 

But the Reserve Bank seems to wish to go further than that, noting the importance of integrating sustainability factors into portfolio management, and recently purchasing US$100 million of green bonds. The current remit of the Monetary Policy Committee includes a preamble noting the government's economic objective of moving towards a low-carbon economy.

And there we start worrying about whether the instruments are suited to the targets, and whether the bank may be over-reaching. 

Getting policy around climate change right is incredibly important. But it is not a job to which a central bank is well suited. We would not ask the Reserve Bank to help ensure that vaccination rates are high enough to prevent outbreaks of contagious disease, and we should raise an eyebrow if it started volunteering to do the job. It is a job better suited to others. And climate change policy is better left with the Climate Change Commission. The Emissions Trading Scheme is the best instrument for mitigating New Zealand's emissions. 

If prudential regulation reaches beyond considering climate change risk as one of many factors affecting the soundness of a portfolio, to instead start nudging companies into changing their practices around climate risk, we start getting into Tinbergen's problem. Making prudential regulation more about climate change makes it less about the soundness and efficiency of the financial system. We then risk doing poorly for both. 

This weakening of focus on core central banking business is hardly unique to New Zealand. Traditionally, central banks have sought to be sectorally neutral in their market operations: if a reserve bank must purchase bonds as part of monetary policy, it tries to do so without skewing the pitch in favour of one sector or issuer or another.

If pitch-skewing is appropriate, that is for democratically accountable parliaments to decide rather than central banks. But Christine Lagarde, the recently appointed president of the European Central Bank, is reviewing whether its bond portfolio should shift from market neutrality to preferring green investments. 

These kinds of policies do not just violate Tinbergen's warnings. They also risk the independence of monetary policy if parliaments object to reserve banks taking actions going beyond monetary policy and normal prudential regulation. 

And there are dangers too if markets come to expect that central banks might not pursue purely monetary goals in any crisis requiring quantitative easing. The results could be even more unpleasant than the confusion of Christchurch City Council rules that would have allowed taller buildings, but only if there were solar panels on the roof.