Googling the above terms this morning some 100 papers, magazines and blogs dealt with her speech at China-India annual financial forum. It would be most interesting and educational to study the reaction to this speech and learn to what depth the communication of this important speech has been dealt with. My first impression is little depth, at least in the first day of its presentation, having looked at the coverage of Businessweek and the India Times.
This “lost decade” speech is important because she, as executive director of the IMF, has a global view and secondly because she attended the G20 Summit in Cannes last week. It took place after two presidents in the Euro zone were removed from their positions and when Italy’s bond payments passed the 7% limit, bringing this huge Italian economy into the fold of countries that will have to be bailed out.
Lagarde’s message was clear: cooperate or otherwise the global economy will go from bad to worse and the decade may be lost in the same way Japan’s decade of the 1990s was lost by being unable to come up with proper domestic and international policies.
What is Lagarde presenting as a solution in the short and long term? She pleads with Russia and China to contribute to the Euro Bailout Fund so that the Eurozone does not fall apart. Her view for long term solutions or solution is more exhortatory of being cooperative and bold without indicating what that boldness could consist of. We have to “keep our eyes on the big prize—a strong, sustainable and balanced recovery”. Should it be more of the same? Should it be recovery or transformation? Where is the equity dimension of the recovery? How are the demands of the global protest movement penetrating the IMF, the ears of the Euro Area Leaders, the G20 Summiteers? Why not tackle the international monetary system first: everybody knows that the world is based upon money—at least in the industrialized and industrializing nations where barter is almost completely absent? Why not integrating the dangerously precarious global economic situation and the climate crisis challenge into a monetary system that tells nations that in the long term those nations that decarbonize their societies the most are the ones that will have the strongest economies and currencies? Why should Lagarde not start talking of taking monetary justice as the guiding principle for global governance rather than only pointing to China’s increased political and economic power as a favorable (?) change in global governance?
This will be theme of an OPED piece during the next couple of months when the IMF members are engaged in selecting a new Managing Director (MD). The following post was written today on the www.imfboss.org in its About US section after the IIMT signed on with its Open Letter for an open, merit-based and transparent selection process. Given the urgency of dealing with the impacts of financial and ecological imbalances, national debates are to take place about the nature of money, the pros and cons of debt-based versus credit-based systems, the need for a monetary standard, whether it is to be carbon, gold or another “intrinsically valuable” entity that is so recognized by governments and civil society.
“I think it is the opportune time for civil society to press the G7/8/20 who are still in charge of the IMF to become serious in dealing with the dysfunctional international monetary system with its financial imbalances, currency manipulation and speculation, and a costly global reserve system. Civil society has to speak louder about the need to move away from national or regional reserve currencies. First, by adopting substitution SDRs and secondly by debating the need for a monetary standard with convertible currencies and fixed exchange rates. The IIMT will soon publish a book making the case for a carbon standard, entitled The Tierra Solution: Monetary Transformation, Climate Change and Sustainable Development. In the mean time, the argument is made in the Stakeholder Forum website as a thinkpiece for the Rio 2012 Summit. http://www.earthsummit2012.org/index.php/pubs/sf-publications/412-sdg-thinkpieces”
Two monetary routes for these carbon-constrained times
This is the comment on March 23 that was made to the IMF conference in the beginning of March.
“Macro and Growth Policies in the Wake of the Crisis” was a significant IMF conference on March 7 and 8 where frank discussions prevailed about past economic theories and about new paths to be hewed by economists.
David Romer has pointed out in his blog post about the gap of not dealing with unemployment in this important conference. I think there is a second gap, the treatment of which would have framed the conference more realistically. It is the gap of micro/macro economics and the climate change challenge.
Though dealing with this challenge can be done in different economic branches two routes, still mainly unexplored, can be envisaged for monetary economists.
It is the reformist route of developing green bonds that would function as an important reserve asset, somewhat similar to Global Green Backs proposed by Stiglitz (not at the conference) and the transformational route that would introduce a carbon monetary standard. While the former route is being discussed by some monetary economists, the latter route is not.
Basing the international monetary system on a carbon standard not only transforms that system, but also the financial, economic and commercial systems which are bound together by the glue of the monetary system.
One of the main advantages of exploring this transformational route is the potential of a carbon-based international monetary system to function as the linchpin of a global governance system that integrates the social, economic and environmental challenges in these carbon-constrained times. Such system could make a veritable contribution to the Rio 2012 Earth Summit where nations will come together to consider the potential of a Green economy as part of an integrated approach to sustainable development. As part of the preparation for this axial conference I prepared a “think-piece” about the transformational route that is available on http://www.earthsummit2012.org/index.php/news/368-sdg-thinkpieces
At the IMF’s blog, called iMF Direct, John Lipsky, the First Deputy Managing Director of the IMF who helped to manage the Fund’s exchange rate surveillance procedure and to analyze developments in international capital markets in the 1970s and 1980s presented a well-written report on October 22 on the Shanghai conference entitled Macro-Prudential Policies: Asian Perspectives” that took place on October 18. His blog entitled “Macro-Prudential Policies: Putting the “Big Picture” into Financial Sector Regulation” responded to this IMF sponsored conference that was hosted by the People’s Bank of China.
Under the “Aims of the conference” the blog stated that “there was wide agreement that the first step in designing macro-prudential policies ought to be a convergence of views regarding the objectives of such policies.” The next paragraph concluded: “Of course, the most basic objective is straightforward—to prevent a crisis like the one just experienced."
I responded to the blog by submitting the following reply: Can the convergence of views only be expressed in the lowest common denominator of preventing another 2008 crisis? I for one believe that the monetary system can be used to combat climate change and advance low carbon, carbon-resilient development by basing it upon a carbon standard. Such standard would make currencies convertible and would remove the costly global reserve system. Curious, how that can be done? Go to http://conference.unitar.org/yale/environment-sustainable-development
Though his boss gave an excellent speech that concluded the one-day conference, the Big Picture thinking of the IMF is not big. It deals with technically sophisticated financial and economic policies without digging deeper to the real causes of the financial and economic malaise of the present global systems.
Curiously enough for a monetary institution like the IMF, the basic operations of the international monetary system itself are not subjected to a Big Picture view. If that were done, some of the many working papers that are being produced every month should have dealt with investigations about the feasibility of monetary standards and engage in exploring various ways of devising them, so that policy makers on the ministerial or leadership levels could discuss them. However, this is not done, mostly because the IMF is not asked by its member states to do this. I have written an open letter to a dozen Obama Administration’s officials suggesting that they propose at the G20 Seoul Summit the establishment of a monetary transformation commission to deal with the monetary conflicts on exchange rates, currency manipulation and speculation and global financial and trade imbalances. Such suggestion would indicate monetary leadership by an economically global declining power and set an example to an economically globally rising power like China which seems unwilling to accept its global economic responsibility.
THE IMF GLOBAL CURRENCY AND THE IIMT GLOBAL CURRENCY
The April 13, 2010 discussion paper—mostly for in-house consumption?—shows how the IMF is angling to elevate its SDRs into a global currency that would be administered by an expanded IMF.
Since John Stuart Mill proposed a global currency in the 19th century many others, well-known and not so well-known observers, have made proposals for a global currency with more or less details on a world central bank. Of course, libertarians and their institutes such as the Von Mises Institute are ideologically opposed to such global monetary system. Like in most of these controversies the perception of the role of government is often a or the crucial factor in determining the differences.
The IMF and those earlier promoters are right in pointing to the need of an international monetary authority to accomplish an equitable and sustainable, and therefore, stable international monetary system.
The International Institute for Monetary Transformation www.timun.net agrees with that need, but disagrees with the IMF’s approach. The Institute proposes carbon-based monetary standard which would transform the international monetary system’s exchange rates, its national currencies and its costly global reserve system. It would remove the global reserve system because national currencies would become convertible because they would be based upon the Tierra, the new monetary system’s unit of account or numeraire. Once nations decide to make to adopt a global currency the Tierra becomes also a store of value and means of exchange.
The reason that this transformed international monetary system is based upon a carbon standard is humanity’s predicament of climate change, its greatest challenge in the 21st century. By making the international monetary system’s standard a carbon standard this important and underestimated international system becomes a systemic support in avoiding dangerous levels of global heating. This transformed international monetary system uses the fee and dividend carbon reduction method rather than the cap and trade method which is considered not to be fast, formidable and fair enough. Thus, the new system is known as the Tierra Fee and Dividend system. It will be presented in book form by Cosimo Publishing at the end of this year. It will be presented at the UNITAR/Yale University conference of 17-19 September as part as their global environmental governance program.
Part of this IIMT’s transformed international monetary system is the introduction of carbon accounts in a nation’s balance of payments. Like its financial imbalances, a nation has to balance its ecological imbalances of being carbon debtors and carbon creditors.
Finally, the IIMT’s carbon-based global currency of the Tierra and its earlier carbon-based national currencies are administered by a decentralized UN World Central Bank that is part of an emerging global political entity.
The Tierra Monetary Pathway can be considered to be an updated version of the bancor, the international reserve currency that was proposed by John Maynard Keynes as part of his vision of monetary reform at the UN Monetary and Financial Conference of 1944, better known as the Bretton Woods Conference. The bancor currency, composed of the price of some 30 commodities, was part of his proposed international clearing union that could act as a bank by issuing bancors. His vision was not accepted and was replaced with the US approach that led to the establishment of the IMF and the World Bank, both of which were and are still controlled by the U.S. government by the Fund’s and Bank’s weighted voting systems.
This updated version of the bancor, which can be called bancor2, is based upon the Tierra international reserve currency and its monetary architecture. Bancor2 is a modern version of the Keynesian vision that would use the carbon-based international reserve currency of the Tierra and a UN Monetary Board to deal with the climate crisis. It would provide an institutionalized means of funding for mitigation and adaptation measures and development of the Millennium Development Goals via the carbon account of a nation’s balance of payments.
The Tierra Monetary Pathway or Bancor2 is presented as one of the half dozen approaches to the climate crisis that a “whole world” approach rather than the “party by party” one that is currently in use.These approaches, which have not featured in the official UNFCCC discussions so far, include Cap and Share, Cap and Dividend, Contraction and Convergence, Greenhouse Development Rights, Reduce and Invest, and Kyoto2. The Irish think-and-do tank Feasta has suggested that the UNEP be invited to establish a process to peerreview and assess these proposals from a technical standpoint. It would then make the results of the review available to the UNFCCC process if appropriate, especially if they could help the current negotiations.
The Tierra Monetary Pathway or Bancor2 has many similarities with the above "Whole World" view approaches to the climate crisis, particularly Kyoto2 which is the most recent and detailed of those five approaches. Its main difference is the addition of the monetary dimension which would anchor this carbon reduction methodology in the important discussion about the need for a new international reserve currency. The Tierra Monetary Pathway is presented as the most recent carbon reduction methodology based upon a carbon standard for the new non-national international reserve currency of the Tierra, replacing the US dollar, the Japanese yen, euro and the pound sterling as reserve currencies.
The Tierra Monetary Pathway or the Bancor2 approach in dealing with the climate crisis is based upon two pillars: FEASTA’s Cap & Share’s equal allocation of carbon emissions permits and the need for the public control of money creation that has been advocated by a wide variety of observers. Both pillars are major challenges in themselves the achievement of which are needed, particularly the equal allocation of carbon emissions permits which is part of the above the "Whole World" view approaches.
Inherent in The Tierra Monetary Pathway or the Bancor2 carbon reduction methodology is its connection to the reform proposals that are being developed in the respect to the economic crisis. This connection represents a radical or transformational approach in which an important component of the international monetary system, i.e. its reserve currency is based upon an ecological or carbon standard rather than a basket of commodities or currencies. This connection, therefore, provides not only an institutionalized means for funding of mitigation and adaptation measures, but also reshapes the international financial system towards the integration of a nation’s carbon and financial accounts where the financial and ecological indebtedness of nations are dealt with simultaneously. Thus, in a way, combating the climate crisis in the Bancor2 approach leads to innovation in the international monetary, financial, economic and commercial systems. This connection of The Tierra Monetary Pathway or the Bancor2 is not accidental, because The Tierra Monetary Pathway’s architect’s point of departure was finding an integrated solution to the economic and climate crises and their longer-term challenges of financial and ecological indebtedness among nations. As a sustainability sociologist he is always on the look out to discover the web of interconnections that is part of the emerging sustainability revolution.
Finally, the Tierra Monetary Pathway or Bancor2 with its roots in both the economic and climate crises is considered a necessary, but not sufficient condition for the full emergence of the sustainability revolution, the challenge of which is well expressed by William D. Ruckleshaus, Head of the U.S. Environmental Protection Agency 1970-73.
Can we move nations and people in the direction of sustainability? Such a move would be a modification of society comparable in scale to only two other changes: the Agricultural Revolution of the late Neolithic, and the Industrial Revolution of the past two centuries. These revolutions were gradual, spontaneous, and largely unconscious. This one will have to be a fully conscious operation, guided by the foresight that science can provide. If we actually do it, the undertaking will be absolutely unique in humanity’s stay on Earth.”
 See, for instance, the New Economics Foundation and Prosperity websites in the UK and the work of attorney Ellen Brown and of Steve Zarlenga of the American Monetary Institute.
 The development of the Tierra Monetary Pathway or Bancor2 can be deducted from the blog history and the Summary Position Statements found on the International Institute of Monetary Transformation’s website www.timun.net
On the surface that seems to be the case. The G20 at their fall 2008 Washington Summit asked to IMF to study a set of questions in preparation for its London Summit in April 2009. The G20 channeled over $500 billion to the IMF after the Summit and at the Pittsburg Summit on September 25 the G20 leaders reconfirmed their decision to use the IMF to assist the developing nations by pledging additional funds and making SDRs available. They also gave the BRIC countries a few percentage points more in the voting power at the IMF.
If the citizens of the rich countries knew how the international monetary system and the IMF loaning business work, they would demand a new institution. Let’s focus on the IMF loan operations. A seasoned international trade lawyer, Ross Buckley, was interviewed on September 23 on the PM program of the Australian Broadcasting Corporation.
STEPHEN LONG (PM): So you think that the International Monetary Fund which has garnered what, somewhere between $US500 billion and $US750 billion to supposedly help the poor countries is actually in a sense a stalking horse for the big global finance houses.
ROSS BUCKLEY: I think that's precisely what's going on. And the reason it's going on is not enough people understand it. There's a democratic deficit if you like at the international level. I don't think rich countries' media or population would allow this but at the international level that's exactly what's happening.
STEPHEN LONG: Well explain why you think that that is the case.
ROSS BUCKLEY: Well because these loans, there's certainly over $500 billion, as you say, of loans. These loans are made by the rich countries to the IMF. They will be conditioned upon the poor countries using them to repay the debt that's due.
So these loans will be used to repay loans that are currently outstanding by poor countries to commercial banks. So the money won't really touchdown in the poor countries. It will go straight through them to repay their creditors.
The IMF lends the money to the countries. The countries use it to repay loans they have to the banks. But the poor countries will spend the next 30 years repaying the IMF.
In a way, if you'd like to see it this way, it's really an increase in seniority of the debt. At the moment the debt is owed by poor countries to banks and if the poor countries had to they could default on that.
The bank debt is going to be replaced by debt that's owed to the IMF which for very good strategic reasons the poor countries will always service.”
Is there an alternative to the IMF? Yes, only if active citizens and effective governments are willing to transform, not reform, but transform the present international monetary system which is the glue to world’s financial and economic systems. This can be done by adopting a carbon-based international reserve currency that would replace the US dollar, euro and yen and a future RMB as reserve currencies. By adopting this new carbon-based reserve currency with its fixed rates of exchange and its carbon account in a nation’s balance of payments the G20 and the UN world would transform the monetary, financial, economic systems and produce an equitable, sustainable and, therefore, stable international system.
Two transformational, not reformist, changes have to be made in order for this new brave world to emerge.
First, the international community decides to adopt the cap-and-share approach to the remaining environmental space, so that each person on the planet of 15 years and older is allocated carbon emissions permits or domestic tradeable quota as proposed by the Tyndall Centre. These permits represent value based upon the carbon standard. Thus, liquidity is brought into the world economic system without forcing the US or other reserve currency nations to go into deficit and nations in the global North who are ecological debtors would transfer resources via their balance of payments to the ecological creditor nations in the global South. Their real financial debts can be nowpaid off without going further into debt.
Second, the present financial systems that are based upon privately owned banks which are given the exorbitant privilege of creating money and, to a great extent, controlling it has not only to be regulated as is proposed in the reformist option. The public authorities have to reclaim their right and responsibility of money creation and control and engage in debt-free banking. Why should governments borrow from their banks in order to bail them out? What happens to developing nations with the IMF as collector of debts, the same happens on national levels in industrialized nations where the private owned banking industry is bailed out by their central banks which, to a great extent, are also the collection agents for their banking system.
There is a great variety of opinions about the effectiveness of the Summit to “recover and reform” the international economic system. The linguistic use of these two terms and the frequency of the term restore in the official communiqué indicate the prevailing view of restoring the earlier system with some built-in reform proposals to prevent the present economic meltdown. Given the imploding global economy with ever larger numbers of people being unemployed and underemployed, time for new thinking and action could have been expected. The NY Times editorial April 3 stated that “they fell short.” The question is to what extent did these leaders of twenty nations and assorted financial institutions fell short. The importance of answering that question determines what has to happen next.
The April 2 Summit has been portrayed as a second Bretton Woods. It is far from a BW Summit. For one, the first BW engaged for some 21 days in tough negotiations. Including the days for its preparation this Summit cannot be called a second BW. Secondly, the basic BW1 institutions are still intact, though voice and representation issues are being discussed. The March 9 half day ECOSOC briefing of the IMF and IBRD show how little progress has been made. Perhaps, the next full day briefing on April 27 which would include the World Trade Organization as the third member of this “Unholy Trinity”, may put greater demands on the three institutions, but it will not be sufficient for the global imploding economy.
Rather than having a follow-up meeting of the G20 in the fall, it would be more productive, capitalizing on the Summit’s collaborative spirit, to call for a week-long period of working sessions as proposed by Walden Bello, using as the basic discussion document the March 19 report of the UN GA President's Commission on Monetary and Financial Crises, also called the Stiglitz commission after its chairman. At such sessions serious attention could also be devoted to Tierra International Monetary Union (TIMU) architecture, which presents a transformational challenge in the global monetary, financial, economic systems by instituting a carton based international reserve currency that could take care for the funding for development and mitigation and adjustment measures in dealing with the climate crisis. More information in the forthcoming third version of the Tierra Manifesto of 2009.
THE INTERNATIONAL INSTITUTE OF MONETARY TRANSFORMATION