anchoring money - council on economic policies · 2014-04-30 · source: graham, reedman, nef (the...

nef (the new economics foundation)

Anchoring money

Money and Resource Scarcity

CEP Conference

Gerzensee, Switzerland

23th April 2014

Josh Ryan-Collins


[email protected]

mailto:[email protected]





Money & economy: conventional, anthropocentric production process


Real world: non-substitutability of resources & wastes


Flaws of the monetary system

‘Virtual’ wealth – the problem of compound interest allowing monetary ‘wealth’ to diverge from the productive capacity of the economy – challenges laws of thermodynamics

Un-economic growth – structural drivers of monetary growth beyond ecological limits

Dysfunction – conflict between store of value and medium of exchange functions

Discounting the future – undervaluing future wealth in economic decision-making (interest -> myopia)

Mis-allocation – lack of incentives for money to be created for investments that create ecological and social value

Financial instability – the problem of money creation for speculative rather than productive use


Discounting the future

“To leave it to capitalism to get us out of this fix by maximizing its short-term profits is dangerously naïve and misses the point: capitalism and corporations have absolutely no mechanism for dealing with these problems, and seen through a corporate discount rate lens, our grandchildren really do have no value.”

- Jeremy Grantham of GMO, $100bn asset-management firm in Boston, Quarterly letter to investors, February 2012


How the nature of money changes the nature of resource allocation

Price of hydro, solar, wind, etc. reduces from 14.5 to 7.00 c/kwh

Price of coal, oil, etc reduces from 10.0 to 7.5 c/kwh

7 c/kwr

Interest

Interest costs 7.5 c/kwh

Amortisation 6.0 c/kwh

Operating Costs 1.0 c/kwh

Amortisation 2.0 c/kwh

Fuel 3.0 c/kwh

Operating Costs 2.5 c/kwh

Interest costs 2.5 c/kwh 7.5 c/kwr

Source: Graham, Reedman, Coombes (2007:44) – Australian cents per Kilowatt Hour


Detachment of money supply from real economy

nef (the new economics foundation) Goberty & Zitoli (2012), ‘Deko: An electricty-backed currency proposal’ available at: http://ssrn.com/abstract=1802166

http://ssrn.com/abstract=1802166


Currency concepts based on basket of commodities

• Bancor (Keynes 1941): international clearing union with Bancor as intl ref currency. Bancor based on gold reserves but also commodity board to account an adjust to member nations trade balances of key commodities

• Exeter Constant (Borsodi 1974) – basket of 30 most widely used commodities, inflation proof. “Invested funds of US$100,000 to continuously buy and sell key commodities on global market over 3 years – retained value versus 15% decline in dollar.

• Ven – digital currency issued by Hub Culture Ltd. – basket of 20 weighted componets including currencies and commodities


Energy as the ultimate ‘backing’

• Law of entropy = availability of useful energy (exergy) is reduced by every transformation process whilst non-useful component (heat, CO2 & other wastes) increases

• 1 Joule = energy produced by human heart in 1 second (kilojoule commonly used)

• Exergy = share of total energy can potentially be drawn from source or system

• Emergy = Solar equivalent joule = how much energy would need to be harvested for the provision of a good, service or system if sunlight was the only available energy source – used to evaluate economic development strategies


Ratio of exergy inputs to GDP, US, 1900-2000 (Ayers and Warr, 2002)


Key findings of Energizing money report

• Different objectives will require diff models: energy-linked money can improve classical functions of money and drive the energy transition

• Need a new reference (unit of account) money linked to natural world - price in nature & make clear non-substitutability – Difficult, top-down reform.

• Stimulating local and regional energy transition: – Global level: accounting systems that link value to resource use-age

– Debit-energy currencies for stable store of value & encourage sustainable consumption

– Future redeemable credit-energy currencies to fund investment in renewable energy


Debit- and credit-based models

Kilowatt cards – intl clearing framework for electricity

Debit based models Credit-based models

Wara – coal backed community currency used by several German city-regions in 1930s depression when banks stopped issuing finance

Renewable Energy Dollars (Turnbull 2007) – energy producers issue dated promissory notes in relation to future energy production to finance production. These notes could be used as reserves by local ‘energy bank’ issuing secondary notes for transactions – fractional reserve based on biospheric energy.


New options introduced by digital money and disintermediation

1. Introduce multiple currencies;

2. Allows automatic conversion of currencies;

3. Makes practical demurrage money;

4. Biometric/biographical identification;

5. Option of fully transparent transactions:

6. Introduces digital purses;

7. Allows contactless transactions without ATMs or bank branches;


“Solarcoin” – an ecological Bitcoin?

• Incentivise the creation of solar energy over next 40 years

• One SolarCoin is granted for verified proof of generation of one megawatt hour of Solar energy

• 50 times less energy consumption than Bitcoin mining; mining ultimately represents less than 1% of circulating currency

• Introduced Jan 2014

• Over 11 million SolarCoins in circulation to date growing 1 million / week (Mar 25,2014)

• 3,000 SolarCoin wallets downloaded

• Active volunteer community (100+ Solar advocates) in US, Europe and Asia

• Unknown number of miners sourcing SolarCoins to date

• Distribution program expected to last 40 years in delivery of 97.5 billion SolarCoins representing 97,500 TerraWatt hours of solar electricity

www.solarcoin.org

http://www.solarcoin.org


Contraction & Convergence/Energy backed currency unit (ebcu) & Special Emissions Rights (SERS) (nef/Douthwaite 1999, 2004)

• SERs and ebcus issued by IMF and allocated to national governments on a per capita basis. SERs issued annually on a continuously decreasing basis (according to C02 reduction targets), ebcus issued only once.

• Ebcus become only currency that could be used for foreign trade. Countries could buy & sell ebcus from other nations – exchange rates between national currencies and ebcus would emerge

• Ebcus could also be used to buy additional SERs from the IMF in order to be able to buy more fossil energy. IMF would cancel ebcus & circulation internationally would fall. i.e. IMF's obligation to supply additional SERs would be strictly limited by the amount of ebcus it put into circulation.

ebcus in circulation ebcu energy prices, cutting level of economic activity – i.e. national economies could only expand at rate they became more fossil-energy efficient.

• Interdependencies between the currencies provide automatic feedback and a self-adjustment of the relative quantities, values and exchange rates: currency itself would give a nation the respective market signal to switch to the path of a low-carbon economy. As ebcu would be used for foreign trades, a relatively weak national currency, in relation to the ebcu, would trigger and support a more efficient use and import substitution of fossil energy, while along this path the national currency would be revalued again.

• Douthwaite’s hope was that, “[u]nder this system, countries would control their economies by adjusting the energy supply rather than the credit supply as they do today.”


World Future Council SDR proposal (2012)

http://www.worldfuturecouncil.org/4828.html

• £100bn SDRs created dedicated to green projects

• new funding not inflationary as issued only against performance, i.e. to produce new goods and services with (mostly) unused productive capacities and unemployed labour.

• IMF member states agree on the issuance of new SDRs to themselves but must commit in advance to putting majority at the disposal of new Climate Fund. small portion (e.g. 10% – 20%) allocated to them to finance agreed national climate protection projects.

• Climate fund change the newly obtained SDRs into the required national currencies at the respective central banks, when they are required to pay for agreed climate projects, e.g. renewable energy plants.

• use and control of this new money coordinated by the Global Environment Facility, UNEP, UNDP or new Green Climate Fund of the UNFCCC.




Questions for further research

• Interactions between these proposals and:

– national banking systems

– International finance esp. ‘shadow banking’

• Governance issues: who decides on allocation of funds for projects

• Evaluation framework to ensure stability and longevity


Further information

• www.neweconomics.org/projects/monetary-reform

• www.neweconomics.org/publications/energising-money

• www.gmwg.org

http://www.neweconomics.org/projects/monetary-reform




http://www.neweconomics.org/publications/energising-money





http://www.gmwg.org


Published by:

Project partners:

This presentation has been produced by nef (the new economics foundation) as part

of the Community Currencies in Action (CCIA) collaboration project.

CCIA is a transnational partnership working to develop and deliver community currency demonstrations in several

member states across the North West of Europe. CCIA will lead the way in sharing knowledge and best practice to

enable communities throughout Europe to grow stronger in their ability to achieve vibrant and prosperous networks

that are effective in delivering positive social, economic and environmental outcomes.

The project is part funded by the EU, under its INTERREG NWE IVB programme.

Find out more about CCIA on our website: www.communitycurrenciesinaction.eu

anchoring money - council on economic policies · 2014-04-30 · source: graham, reedman, nef (the...

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