Statement for the CSD18

Here is the draft statement which will not substantially change.

This is the first public statement without a carbon-based international reserve currency, because during last weekend it become clear that no reserve system is needed in the Tierra Fee and Dividend system, a major decision in the development of the system.

TRANSFORMING THE INTERNATIONAL MONETARY SYSTEM

TO SERVE LOW CARBON AND CLIMATE-RESILIENT DEVELOPMENT:

The Case for the Tierra Fee & Dividend System

A Statement at the 18^th UN Commission for Sustainable Development

By

The International Institute of Monetary Transformation

Frans C. Verhagen, M.Div., M.I.A., Ph.D., sustainability sociologist, president

www.timun.net; gaia1@rcn.com; 718 275 3932; 917 617 6217

Draft, 24 April 2010

INTRODUCTION

Development or living well in global North and South has to be low carbon and climate resilient within the ethical context of Article 3 of the UNFCCC and the demands of climate justice as proposed at the December 2009 Copenhagen conference and the April 2010 Cochabamba peoples’ conference.

Domestic, regional and especially international monetary policies can be used to work towards low carbon and climate-resilient development in the global North and South. Fundamental change in the often underemphasized international monetary system leads to fundamental change in the financial, fiscal, economic and commercial systems given that it is like glue which binds them together.

THE PRESENT MONETARY NON-SYSTEM AND THE DIRECTIONS OF THE MONETARY FORK IN THE ROAD

Many observers have pointed to the need of having a second Bretton Woods monetary system since the early one of 1944 expired on 15 August when the USA unilaterally disconnected the convertibility the dollar with gold. This action lead to emergence of floating exchange rates and of reserve currencies, the major one is the US dollar. It also led to the creation of SDRs which have been hardly used during the last 40 years. Basically, the international monetary system is a non-system which has been judged to be immoral by the notable monetary economist Mundell.

IMF, the fund to balance the global financial imbalances, has failed its surveillance function because of the continuing global financial imbalances and because of its double standard for developing and developed countries.

The present non-system is a muddling at considerable transaction and reserve currency maintenance costs amidst humanity’s greatest challenge of restoring the degraded Earth’s processes of the cycling of matter (particularly the carbon cycle), the flowing of energy and the webbing of life. There is a choice between the present muddling through and using a transformed international monetary system for working towards low carbon and climate-resilient development. We have reached a fork in the monetary road: one direction is to continue with reformist proposals for IMF and reserve currencies keeping an international order in place that enrich the few, impoverish the many and imperil species and planet; the other direction is to embark on a transformed international monetary system based upon a de-carbonization monetary standard and the new currency of the Tierra with the new institutional arrangements of a carbon account in a nation’s balance of payments and an  UN Monetary Board which would have greater authority than the 1944 Keynesian International Clearing Union.

Reasons that governments, CSOs and business are to take the transformational route are the following:

• We have to go beyond the reformist proposals of the 2009 UN Stiglitz Commission and the BRIC countries for a non-national or supranational reserve currency and the sophisticated interpretations of the UNDESA and UNCTAD proposals for international reserve currencies and move toward a transformed international monetary system that does not need reserve currencies which costs the developing world some $100 billion annually;
• A transformed international monetary system is able to dealing with the integrated financing of development and climate measures by the issuance of a carbon-based international currency within an equitable system, thus providing liquidity without causing inflation by spending credit into circulation without becoming indebted to the privately-owned banking systems;
• Only a transformed international monetary system is able to  provide the necessary monetary stability for international finance, trade and economics to flourish
• The IMF and its SDRs are unable to lead in this transformation because of its limitations in distributional justice and of its inability to deal with the climate crisis in a fair, formidable and fast way.

TIERRA FEE & DIVIDEND SYSTEM

• Integrates the transformed international monetary system with a carbon reduction approach that produces faster, fairer and more formidable results than the presently dominant approach of cap-and-trade;
• Its monetary architecture is based upon the de-carbonization monetary standard, a most appropriate standard in these carbon-constrained times.
• It also includes the principle of government as regulator and driver based upon the contextual sustainability framework of a sustainability economics that includes a bioregional focus with the novel concept of frugal trade

NEED FOR THE ESTABLISMENT OF THE UN COMMISSION ON MONETARY TRANSFORMATION AND THE CLIMATE CRISIS

·        Looking for bold delegations that take leadership in having the GA pass a resolution in the same way that GA in October 2008 instituted the UN The UN Commission of Experts on the Monetary and Financial Crisis and its Impact on Development

·        To be followed by prompt intensified cooperation between the UN agencies such UNFCC, INCTAD, UNDESA and UNEP, CSOs, business and academe.

·        For additional information, see forthcoming Cosimo Publication THE TIERRA FEE & DIVIDEND SYSTEM: A Monetary Approach to Low Carbon and Climate-resilient Development by Frans C. Verhagen, M.Div., M.I.A., Ph.D.

UN Commission on Monetary Transformation and the Climate Crisis

INTRODUCTION

            During these carbon-constrained times scant attention is being paid to the challenges of the climate crisis in monetary conferences and in academic articles dealing with  monetary and financial affairs. Each area of human endeavor seems to exist in supreme isolation. It is time that  the dynamic interaction and the synergies between the international monetary system and the climate crisis social system be explored and be used to rejuvenate both systems.

            To that effect I am proposing that both the climate crisis, the global economic development, the climate justice  and the monetary communities begin laying the groundwork for a UN Commission on Monetary Transformation and the Climate Crisis, to be established by the Cancun COP 16 of the UNFCCC in December 2010 or at COP 17 in 2011, so that its results can become part of the political process of the Rio 2012 Earth Summit. It is further suggested that UNDESA’s World Economic and Social Survey (WESS) continues focusing into greater depth on international monetary system reform than it did in its Geneva workshop in early February in preparation of WESS 2010.

            Expressed in terms of global financial imbalances—the bane of our present economic malaise—and of global ecological imbalances—the bane of poor climate negotiations—the challenge becomes to find ways to resolve those two types of global imbalances creatively.

            Important for this daunting challenge is to find agreement on a value-based framework such as the Earth Charter that make all participants look into the same direction.

OJBECTIVES

·        To explore how a reformed or transformed international monetary system can be used as a means to strengthen solutions to the climate crisis and to promote global economic development

·         To explore how the recommendations of the June 2009 Report of the UN Commission of Monetary and Financial Experts can be integrated with reformed or transformed international monetary system

·        To evaluate the various proposals made for international monetary reform, particularly in respect to global reserve system

·        To evaluate various proposals that integrate the monetary system  with social system dealing with the climate crisis, particularly the Tierra Fee & Dividend system which is based upon a de-carbonization monetary standard

·        To explore the contents and process of climate negotiations and how they can be strengthened by a transformed international monetary system that uses present monetary reforms as basis for its transformation

·        Develop a Plan of Action

PROGRAM OF WORK

·        Determine the value-based framework that will guide the Commission

·        Review the fact of ecological indebtedness and its future role in climate change negotiations, using, among others, findings of the Cochabamba Conference of April 2010

·        Review the contents and process of the climate crisis negotiations and explore ways how they can be strengthened by their dynamic interaction with the international monetary system; Review the 2009 Commission recommendations in light of its potential for reducing the climate crisis

·        Review the present proposals for the reform of global reserve system as discussed in the WESS work shop’s background paper by professors D’Arista and Erturk and the UN-DESA Policy Brief #27 of January 2010 in light of reducing the climate crisis

·        Survey the present climate funding facilities, including the recent High Level Advisory Group, and the efficacy of pledging conferences and compare them with the needed budgetary transfers to fund climate mitigation and adaptation measures and development.

MEMBERSHIP OF THE COMMISSION

·        several members of the 2009 UN Commission of Experts

·        several staff members of the UNFCCC, UN/DESA, UNCTAD

·        monetary economists from academe and business

·        CoNGO representatives and their designees

CONCLUSION

            We live in a complex world where the role of governments of regulators and drivers is not to be decreased, but to be increased. This dual role cannot be accomplished without striving for policy coherence and international cooperation. A UN Commission on Monetary Transformation and the Climate Crisis has at least to explore the possibility and feasibility of having both rejuvenate one another and of bringing a coherent climate funding system into existence .

“Without vision, people perish” Proverbs 28:19

“Whatever you can do, or dream you can, do it. Boldness has genius, power and magic in it.”

Johann Goethe

Forceful focus on the need for a global reserve currency and real rate exchange mechanism and the Ti

On September 7 UNCTAD released its Trade and Development Report 2009 with its major emphasis on the financial and monetary system and a minor emphasis on the climate change challenge. On September 10 Dr Stiglitz and UN General Assembly President Father Miguel D'Escoto Brockmann held a news conference at UN Headquarters about the forthcoming report of their Commission of Experts to be released on September 22, the day of the Ban Ki-moon’s high level conference on climate change.

 Both reports agree that more effective regulation and supervision of financial market activity is indispensable to prevent a repeat of the current global financial and economic crisis and that, equally important,  reform of the international monetary and financial system is needed aimed at reducing the scope for gains from currency speculation, and at avoiding large trade imbalances. Both reports strongly advocate the need for a global reserve currency that is not nationally or regionally based.

The UNCTAD report, more than the Commission report, focuses on the bane of speculation. The authors, Detlof Kotte and Heiner Flassbeck both of whom are very outspoken in their interviews about the scourge of speculation and its minimal contribution to the real economy, point to the large majority of financial market participants who react to the same set of "news" with very similar patterns of risk taking. This is why financial speculation leads to upward and downward overshooting of prices, or even to price movements in a direction that is not justified by fundamentals. In particular, speculation has increased price volatility in commodity markets and has caused instability and misalignment of exchange rates. These can cause lasting damage to the real economy and to the international trading system. They strongly argue for a mutually agreed framework of a new managed exchange rate system. Such system would well-nigh cut out speculation on currencies.

Edward Conway, the economics editor of the UK Telegraph newspaper and website, recognizing the major punch of the UNCTAD report, headlines his blog with “UN plans for new world monetary system have come too late.”  He and others believe that the “green shoots” discourse may have taken the wind out of the sails of monetary reform. On the other hand, the recession is not over and the “green shoots” may dry up in our shriveled global economic system, thus prompting the G20 to start thinking about real reforms, and perhaps a transformational change.

Where does this situation of two outstanding reports that may be too late leave the Tierra Monetary Paradigm with its carbon-based global reserve currency, its fixed or managed exchange rate mechanism, its integrated balance of payments that keeps account of the financial and ecological indebtedness of nations in the global North and South?

Both reports present an agreement on the fundamental analysis of the past and present global economic system and offer challenging, but realistic proposals to reform the system. The Tierra Monetary Paradigm goes one step further and asks for monetary transformation to simultaneously deal with both the economic and climate crises of our times or, put into a longer time frame, of the financial and ecological indebtedness of nations in the global North and South. Though the UNCTAD Report made some good suggestions in dealing with the climate crisis, it did not make the connection of monetarily connecting it with the excellent proposals to counter unproductive speculation. The UN Commission’s report only mentions the climate crisis without going into detail, let alone connecting both crises in one overall perspective. However, one of its commissioners, head of the UN Department of Social and Economic Affairs, told me at the end of a panel discussion in June to “keep at it”, i.e. keep pushing the transformational route for international monetary change. I am resolved to do this by finishing the writing of the Tierra book this fall and by continuing to connect the Tierra Monetary Paradigm to important events such as the two reports this week. I still firmly believe that this transformational route is the best roadmap, not a blueprint, to dealing with an international economic and social system that still enriches the few, impoverishes the many and imperils the planet.

Tierra international reserve currency at UN Conference

The following is the one page handout that spells out the latest thinking. For more information see IIMT  documents for the 4 page backgrounder.

THE TIERRA

A Proposal For A Carbon-Based International Reserve Currency As A

Major Component Of The UN Funding System For Development &

Climate Mitigation And Adaptation

Frans C. Verhagen, M.Div., M.I.A., Ph.D., President

International Institute of Monetary Transformation

www.timun.net; gaia1@rcn.com

WHAT IS THE TIERRA?

The Tierra is a carbon based international reserve currency that is based

upon the belief that monetary relations among nations must take into account

both financial and ecological indebtedness. It is an accounting unit that

measures ecological indebtedness as part of a nation’s carbon account that is

part of its balance of payments.

WHY SHOULD NATIONS ADOPT AN INTERNATIONAL RESERVE

CURRENCY BASED ON A CARBON STANDARD?

Nations states, which recognize their common but differentiated

responsibilities, will accept a carbon based reserve currency.

It would offer an equitable approach to dealing with the financial

indebtedness of countries from the global South. A carbon based reserve

currency would, at one and the same time, be a means for ecological debtor

countries in the North to settle their ecological debts with countries in the

South and for financial debtor countries in the South to settle their financial

debts with countries from the North. By allocating carbon emissions permits

(CEPs) to all adults and adolescents in the global North and South, it would

provide liquidity to all on an equitable basis. This would promote purchasing

power, especially to countries in the South which are hardest hit by the

present economic and climate crises.

At the same time the Tierra would be a contribution to combating climate

change. By transferring Tierras from ecological debtor countries (in the

North) to ecological creditor countries (in the South) as a means of

balancing carbon accounts, a carbon based currency would function as a

major institutional mechanism to combating climate change.

HOW DO YOU CREATE A CARBON-BASED INTERNATIONAL

RESERVE CURRENCY?

Unlike national or regional currencies that come into existence due the

governmental promotion and market acceptance, the Tierra would be

brought into existence by an international monetary decision-makinf process

that allocates CEPs to a nation’s Tierra Administrative Board based upon its

adult and adolescent population. In its search for a new international reserve

currency that is not nationally or regionally based the UN Conference on the

World Financial and Economic Crisis and its Impact on Development in

New York (6/09) and the Copenhagen Climate Change Treaty conference

(12/09) could establish a UN Monetary Board that would include the carbonbased

Tierra on an equal basis with non-emission based currency proposals.

The value of the Tierra would be based upon the carbon standard upon

which nations can peg their currencies. Its value would be determined by the

past, present and future carbon prices on European and Chicago Carbon

Exchanges. It would be set for several years so that it could become a stable

standard with fixed exchange rates. Thus, the carbon standard would

function like the classic gold standard which was used between the 1890s

and WW I. Like the maneuvered gold standard it would have a narrow band

within which currencies could fluctuate.

WAS THERE EVER A CARBON-BASED RESERVE CURRENCY?

In the late 1990s there was an emission-based currency unit-Ebcu-- the

originators of which even held an international conference in 2000 that

produced the FAESTA Noordwijk Aan Zee Draft Treaty. Like the Tierra, it

was based upon emissions. However, it was not conceived as a reserve

currency that would be part of a nation’s carbon account in its balance of

payments. Both the Tierra and Ebcu are the only emission-based currency

proposals amidst a dozen other currency proposals that are based on a basket

of currencies, the consumer price index or other monetary or economic

arrangements.

HOW DOES THE TIERRA COMPARE WITH THE SDR?

Unlike the SDR, the Tierra offers a transformational approach to solving

ecological and financial indebtedness--using carbon accounts in the balance

of payments as an institutional means to fund development and climate

mitigation and adaptation.

New York City, 17 June, 2009