subscribeComparing the classical gold standard and the carbon standard
Post By gaia1 in IIMT
The new carbon standard has several features in common with the historical gold standard. Both monetary systems have standards that fix exchange rates among nations based upon those standards. This leads to relative stability and predictability because the value of the unit of account stays the same and thus currency fluctuations need not to be taken into account when planning a business transaction or a leisure trip. Of course, prices for goods and services may go up or down based upon many economic and fiscal factors, but they are always expressed in the value of the currency that remains the same.
Both international monetary systems have convertible currencies because they are anchored in a standard that determines the value of the currencies. The gold standard was defined in a precise amount of gold for a precise amount of value in the unit of account (Pound sterling in the 19th century and US dollar in the 20th century). The carbon standard is defined in a precise targeted tonnage amount of CO2e emissions per person expressed in the precise amount of value in the Tierra, the TFD’s unit of account. There are two ways that a carbon-based monetary standard is applied: national currencies become carbon-based or a carbon-based world currency is created. In both cases nations can trade with convertible national currencies or the single carbon-based global currency. In the latter case, the Tierra is not only a unit of account, but also an international means of exchange. It has become a vehicle currency, that can be banked and receive interest. As such it has become a store of value, the third major characteristic of money in modern societies.
Both systems have a more or less automatic mechanism of balancing their financial accounts. The balance of payments during the gold standard was accomplished by transferring gold from the debtor nation to the creditor nation. During the gold/dollar standard the
Both systems agree that the present monetary system with its heavily fluctuating exchange rates, rampant currency manipulation and speculation and costly global reserve system has to be removed. There is no standard in the non-system which Nobel laureate Robert Mundell has called a ‘criminal’ system because of its instability, unpredictability, inequity and unsustainability.
Why should the carbon-based monetary standard be preferred over the gold standard? There are four main reasons: a monetary, a philosophical, an ecological and a fiscal reason.
The classical gold standard suffered from the following monetary shortcomings. It did not possess the capacity to create credit for a growing international economy. During the gold/period of 1945-71 credit flowed into the international economy through the use of the convertible US dollar which, by the way, gained interest unlike the sterile gold in central banks’ vaults. The drawback of the latter system’s credit infusion became clear in 1958 when the BW system under the IFM was most successfully implemented. The
The classical gold standard had also the built-in rigidity of very narrow bands of its fixed exchange rates. The difficulty of adjusting exchange rates is a perennial problem from Florentine bankers, the British supported classical gold standard in the 19th century, to the
“Barbaric relic” is the epithet that John Maynard Keynes gave to the gold standard. Its limited availability even with new discoveries is unable to meet the demand of an expanding global economy.
The Tierra monetary architectures would not suffer from these three monetary shortcomings of the classical gold standard. Its UN World Central Bank has the global authority to create credit in amounts that it sees fit in the face of debt-laded nations that are trying to cope with both the economic and climate crises. Setting bands around its fixed exchange rates is part of its functions as the global institution of monetary governance. Like always, the Bank would be faced with the challenge to adjust a nation’s carbon-based currency by setting its par value with the Tierra, thus either devaluing or revaluing its currency. Obviously, CO2e is an ample standard because much reduction of CO2e has to take place before the standard has to be changed to another standard that is intrinsically valuable at the end of the 21st or the beginning of the 22nd century.
The philosophy of most gold standard proponents is libertarian: less government, freedom to individuals and markets. They are followers of the so-called Austrian school of economics of Friedrich von Hayek and Ludwig von Mises and its American adherents such as Milton Friedman, Murray Rothbard, Judy Shelton and others. Their main supporting organizations are the Von Mises Institute and the Cato Institute. For them the return to the gold standard means that politicians whether central bankers or finance ministers are not able to subject their citizens to their manipulation of the money supply and of price levels robbing them of the value of their assets. These monetarists would set a percentage of growth in the money supply and the system of efficient markets would automatically adjust to this monetary straightjacket.
The role of government under the TFD system, adhered to by economists with the Keynesian approach, is an active one. It is to regulate the financial sector and to direct the economy in a way that a level playing field is created, so that private enterprise can flourish within a clearly determined and fair economic framework. In this conception of the role of government the question is not less or more government, but the right level of government. It is this role of government that underlies the Tierra Fee & Dividend system where the international monetary system is being used to make the Fee & Dividend carbon reduction method more effective in reducing GHG emissions.
The ecological reason why the carbon-based international monetary system is to be preferred above the gold-based one is its ability to effectively deal with the climate crisis. By having nations anchor their currencies on the Tierra—the TFD’s unit of account—they are forced to engage in decarbonizing their societies by reducing coal-fired power plants, investing in renewable energy technologies, increasing energy efficiency and conservation, etc. The strength of their economies is mainly determined by their energy infrastructure which in turn is reflected in the strength of their currencies the value of which is expressed in the amount of Tierras their currencies can command.
In conclusion, the ability of providing extra liquidity to global economic system makes the carbon-based Tierra Fee & Dividend system superior to a gold-based international monetary system that does not deal with the century’s most important ecological challenge and that is prevented from having governments take an active role in determining a pathway to an equitable, sustainable, and, therefore, stable international monetary system. Through its UN World Central Bank, an anathema for libertarians, governments are able to provide liquidity by issuing extra allocations of Tierras based upon a per capita system rather than the quota system through which the IMF allocates its synthetic currency of Special Drawing Rights (SDRs). There is no equivalent international monetary institution for libertarian economists because they have rejected the IMF as an intrusive international institution that is not needed in a gold standard. They do not have a lender of last resort that is able to circulate credit into a global economic system where millions of people are unemployed, where sovereign debt burdens are severe, where currencies sometimes fluctuate by 50% in a decade’s time and where hundreds of billions of dollars (Tierras) are needed to finance low carbon and climate-resilient development.
The following chart presents a comparison of the classical gold standard with the carbon standard, summarizing most of the above information. Note that the balance of payments schedule in the classical gold standard was seemingly a rather rigid adjustment mechanism to balance financial accounts between nations. The balance of payments in the TFD system is less rigid because there is an international monetary institution the Board of Governors of which has a global authority to make the balance of payments work in a flexible way. However, its adjustment mechanism of balancing the carbon accounts of nations can only flexibly become in operation after a convergence period that would narrow the wide gap between carbon debtors in the global North and the carbon creditors in the global South. Both the flexibility and convergence issues are part of the negotiations that precede the signing of the Tierra Treaty.
COMPARING THE CLASSICAL GOLD AND THE CARBON STANDARD
Features gold standard carbon standard
Usage mostly in 19th century being proposed for 21st century
Present proponents mostly libertarian mostly Keynesian
Standard precise gold price precise CO2e per person target
Exchange rates fixed with rigid bands fixed with managed bands
Currency national gold-based national carbon currencies
Unit of account an ounce of gold Tierra based upon standard
World currency no proposals Tierra carbon-based world currency
Balance of payments rigid automatic adjustment auto adjt after convergence period
BOP accounts financial financial and ecological/carbon
Governance
Provision of liquidity none/SDRs under IMF as needed for best system operation
Relevance for 21st Cty too many shortcomings directed to serve the climate crisis
C- International Institute of Monetary Transformation