<p>While financial regulators undertake the traditional mandates of managing inflation and maintaining financial stability, they have in recent years also sought to accelerate green and circular development by formulating "green financial policy". Can they truly drive a circular economy? This paper examines the effects and mechanisms of green financial policy on environmental quality, energy efficiency, and natural resource conservation—three dimensions the circular economy emphasizes. To this end, we collect large-scale micro-level data on green financial policy from31 provincial-level regions in mainland China, and for the first time construct two distinct comprehensive indices to separately measure green financial policy intensity and green financial market development. Using the novel data, we find that green financial policy exerts positive effects not only on financial market greenness but also on environmental quality, energy efficiency and natural resource conservation, indicating that financial regulators have successfully promoted the circular economy. However, mechanism analysis shows that, except for environmental quality, the mediating effects of the green financial market are not significant. This suggests that green financial policy appears to operate primarily like a direct environmental policy and its role in leveraging financial market channels to facilitate the circular economy has not been fully realized. Lastly, further analysis demonstrates that for the specific policy objective where the green financial market actively functions as a transmission channel, the level of marketization significantly reinforces the policy’s overall effectiveness. These results give financial regulators more targeted insights to refine policy design.</p>