China's currency policy and the climate crisis

Today’s New York Times critically deals with China on its front page (“China Rises Above Recession, Inviting Scrutiny”) and its main editorial (“It Isn’t Working for Anyone Else”). In both pieces China’s currency policy is attacked as not being permitted to float as other currencies do. By its unnatural attachment to the US dollar it is able to reap profits while upsetting the fragile recovery efforts of the rest of the world.

What can be done about this beggar-thy-neighbor currency policy? Nations such as the US have already taking protectionist measures by slapping exceptional tariffs on Chinese tires and anti-dumping duties on steel pipes. Others will follow in order to force to abandon its cheap Renminbi policies.

This increasingly conflictual situation shows how poorly the present international monetary system works with its floating exchange rates: one important trade partner refuses to stick to the rules of the “non-system” and the trading world is at edge, particularly in a time of economic distress after the near collapse of the international financial system has passed for the time being.

What is needed is monetary transformation both internationally and nationally. Nations have to start seriously thinking of returning to a fixed exchange rates that are based upon an agreed upon standard. A beginning of this process was made when the UN Stiglitz Commission of June 2008 proposed to move away from a national reserve currency such as the US dollar, euro or yen. It was China who proposed a “supranational reserve currency” in the lead-up to the G20 Summit in April 2008.

Nationally, nations have to reassert themselves and remove the fractional reserve  banking privilege from privately-owned banking systems which have to compete using this money creation function. In this transformational process nations are also to separate from these transformed banking utilities their securities dealing which, in the case of the US, means restoration and updating of the Glass-Steagall Act of 1933. 

The TCS system, developed mostly to deal with the monetary dimension of the climate crisis, proposes carbon standard with the Tierra as its international reserve currency. It further proposes that nations after agreeing on a cap, hopefully in Mexico City, monetize the carbon emissions permits for each adolescent and adult into Tierras. These Tierra reserves become part of a nation’s carbon account in their balance of payments, which like their other two financial accounts, have to be balanced. Ecological debtor countries in the global North, based upon the acknowledgement of the historical fact of atmospheric occupation and the acceptance of the value of climate justice, are to settle their carbon debts with the ecological creditor countries in the global South. This financial flow, created by the monopoly-like infusion of Tierras into the global financial system, would institutionally provide the greater part of the funds to the latter countries for their mitigation and adaptation measures and development needs.

Part of this proposed TCS system is an updated version of the International Clearing Union and its Bancor proposal that John Maynard Keynes brought to the Bretton Woods UN Monetary and Financial Conference of 1944. Besides administering the Tierra reserve system, this Tierra International Clearing Union would also the clearing house of all international financial transactions, thus bringing transparency to the regulation of those flows.

Given that these changes go beyond being reformist because of their transformational nature, present international financial institutions such as the IMF are to evolve into new institutions where some of their resources, but not their present neo-liberalist and privatizing, can be utilized.