The International Institute of Monetary Transformation   [ click to return to main site ]   subscribe
Jan
26

Davos at a dangerous crossroads

Post By gaia1 in Transformation versus reform

For forty years professor Klaus Schwab has corralled business leaders, politicians and NGO leaders to come to Davos and to work together. In preparation for these annual meetings many other meetings are held and there are many ongoing initiatives that promote trans-institutional collaboration.

 

This week some 2500 participants, half of whom are corporate business leaders, will congregate under the ambitious theme “Rethink, redesign and rebuild.” As a matter of fact, the World Economic Forum (WEF) has a special initiative dedicated to redesign. “The Global Redesign process is integrating the Forum’s diverse communities through a series of meetings and activities structured to promote integrated thinking and develop concrete proposals to update and upgrade structures of international cooperation in a wide range of areas.”

 

Both the WEF and the world are at a dangerous crossroads, both are at an inflection point where hard choices are to be made, that bring either death or life to people, species and planetary systems. Though redesigning, particularly the redesign of global financial structures, receives top attention, the WEF rethinking focus is weak. It stops at some reformist proposals while the international monetary, financial, economic and commercial systems continue to their work, i.e. enriching the few, impoverishing the many and imperiling species and planet.

 

At this dangerous crossroads of an aggravating climate crisis, an economic crisis that continues to keep millions of individuals out of work, and a financial system that is still out of control transformational rethinking would include at least three major components. They are integrated in a transformational system, called the Tierra Fee & Dividend (TFD) system.

 

The TFD first of all addresses itself to the climate crisis and proposes a Fee & Dividend system rather than the going cap-and-trade system. The latter is a second rate carbon reduction methodology, because it is not fast, formidable and fair enough.

 

While this fee and dividend system or similar tax systems will soon regain the upper hand among the half dozen carbon reduction methodologies, the Tierra Fee & Dividend system’s second component of adding a carbon-based monetary dimension to this Fee & Dividend system is at the bottom rung of acceptance, because it has only recently been proposed and it demands an integration of three distinct disciplines. The International Institute of Monetary Transformation is working on a re-carbonization monetary standard with its carbon-based international reserve currency of the Tierra that would be part of an updated International Clearing Union, proposed by John Maynard Keynes during the Bretton Woods UN Monetary and Financial Conference of 1944. This carbon based monetary system’s international reserve currency and its Tierra International Clearing Union also derive some its rationale from the recommendations of the UN Stiglitz Commission of June 2009.

 

In order for this TFD system to work the public sector has to reclaim the money creation function from privately-owned banking systems and engage in efficient regulation of financial flows via the Tierra International Clearing Union which, in Soros’ words, is to be the “global sheriff”. This governmental role is to be fully coordinated across the G192, because otherwise “financial arbitrage” is going to take place, particularly by the TBTF financial corporations.

 

At this crossroads that is full of peril, but also full of promise, the choice becomes choosing between a route of muddling with some minor reforms here and there, and a route of transformational rethinking and redesign that addresses the economic and climate crises systemically and builds towards an equitable, sustainable, and, therefore, stable international monetary system that, as Barry Eichengreen has it, is the glue that binds monetary, financial, economic and commercial systems together.

 

 

Jan
20

TDF and the environmental finance community

Post By gaia1 in American Monetary Matters


The formation of the environmental finance community can be considered to have started
at the end of the 1990s when the Environmental Finance magazine was born. Its editor,
Mark Nicholls, looked back at a "decade of progress and a few pitfalls on the way" in the
magazine's 10th anniversary issue of October 2009.

He summarized the 10 years as follows: "Indeed, we were often asked at that time
whether the title wasn't a contradiction in terms. Sustainable banking was a niche pursuit,
there was no market for carbon credits, and renewable energy uptake was a fraction of
what it is today. Ten years on, I think it's safe to say we now have proof of concept. The
enormous increase in concern about environmental issues, especially climate change,
made concrete by government regulation and changing consumer preferences, has
permeated into nearly every corner of the financial sector and the businesses it serves.
....the past 10 years have, as we expected in the late 1990s, seen a sea change in how the
environment is perceived by the business and financial communities. In carbon, an
"environmental good" now appears on the balance sheets of literally thousands of
companies. An entire market, worth tens of billions of dollars, has been created to
channel finance to projects that reduce greenhouse gases."
Pitfalls were phased by him in the following way. "But the past decade hasn't been
without its ups and downs. While the Kyoto Protocol had been created two years before
our launch, its entry into force was to take another five years, severely testing the
business plans and financial reserves of early movers in that market. To this day,
regulatory uncertainty and political vicissitudes bedevil the market for carbon credits
more than perhaps any other."

In the view of this opinion maker climate change is seen to have substantially entered the
business world which is served by his financial community. It has entered that world as a
carbon market where money can be made, particularly with the buying and selling of
carbon credits. It is significant that in the magazine's October issue a summary appeared
on its website---the hard copy monthly magazine costs about $600--entitled 'US carbon
market will be inefficient-- banker". It mentions that "a leading carbon banker has
warned of the risk of inefficiencies in the looming US cap-and-trade market." Note the
reason that he gives for this inefficient US carbon market. "Proposed reforms to
derivatives trading in the US, including restricting derivatives to exchanges, would make
an emissions trading market inefficient and will raise transaction costs, said Abyd
Karmali, a managing director at Bank of America Merrill Lynch in London, at the
Carbon Finance 2009 conference on 20 October."
Given this mindset of a carbon market that is not to be regulated, but at the same time
wants is to be stable for investors to invest their funds, the introduction of the tri-partite
Tierra Fee & Dividend system faces at least three major challenges in respect to the
environmental financing community.

First, the environmental finance community is to be willing to abandon cap-and-trade
carbon reduction methodology for the Fee & Dividend carbon reduction methodology
and willing to focus on the other areas of environmental finance that are part of its
financing programs. This challenge is probably less arduous than the other two
challenges, because the tides may be shifting from cap-and-trade to a Fee & Dividend
system anyway.

Second, the environmental finance community may object to the increased governmental
role in the international monetary and financial system as proposed in the Tierra
International Clearing Union, and in phase 2 of the Tierra Fee & Dividend system, in the
Tierra International Monetary Union (TIMU), both of which would be part of the UN
system. Being located in the London financial center, the magazine seems to express its
agreement with a recent court rule in the following summary in its November issue,
entitled "UK Treasury wins first round of RBS environment case". The summary reports:
"A High Court judge has quashed an attempt by three NGOs to force the UK government
to apply stricter environmental and social criteria to investments made by RBS, one of
the banks nationalised during the credit crunch. However, the NGOs have vowed to
appeal the ruling. Legal action launched in July by the World Development Movement,
Platform and People & Planet has suffered an early setback, after an oral hearing failed to
secure the court’s permission for a judicial review.”

Third, the environmental finance community would presumably most strongly object to
making the reduction of carbon the basis of a new monetary standard for a transformed
international monetary system. This re-carboniazation monetary standard together with
its accounting unit of the Tierra, in either its reserve or vehicle phase, and the other
components of the Tierra Fee & Dividend system’s monetary architecture would turn
their views on carbon upside down. Instead of making money on carbon, they are to view
carbon reduction and the other greenhouse gas emissions as main ingredients for
successful businesses that they want to finance, but outside a carbon market. They also
are to place great emphasis on the Carbon Disclosure Program so that companies can be
evaluated on their environmental, particularly carbon, impacts. It is also this demand for
carbon disclosure that the three main institutional investor networks, i.e. IGCC, Investor
Network on Climate Risk, Investor Group on Climate Change and the UNEP Finance
Initiative emphasized in their “2010 Investor Statement on Catalyzing Investment in
Low-Carbon Economy” issued at the UN Headquarters on January 14, 2010. It is
significant that the statement of this community of fiduciary investors who control a pool
of over $13 trillion had as its subtitle “Investors Urge Policy Makers to Act Swiftly”,
indicating their view of the important role of governments in creating the right financial
conditions that can lead to fast, formidable and fair approaches to greenhouse gas
emissions.

 

 

Jan
13

The Tierra Fee and Dividend System and Carbon Trading

Post By gaia1 in Tierra Currency

 

The January 9 blog post has been significantly improved after attending a panel discussion on Sunday January 10 and, especially  the reading and studying of Hansen letter of the chairman of the Carbon Trading Summit that is being held today.

 

Though I have abandoned the cap-and-trade approach for some time, had some positive opinion about cap-and-dividend and carbon tax approaches, have been in favor of the "Whole World" view approach of Cap & Share, I now go one step further. I have reanalyzed the Tierra Cap & Share approach with its monetary dimension and have decided to base the Tierra system on a variant of the Hansen fee & dividend. The two major differences, as can be seen below, are its inclusion of the concept of climate justice and its global orientation. So the TCS system is going to be labeled the Tierra Fee & Dividend or TFD system. Thus, the following 12 statements are reflective of this decision.

 

The reformulated position of the International Institute of Monetary Transformation’s tripartite TFD system in respect to the climate crisis and humanity’s pursuit of a sustainable energy future is the following.

 

1.      The climate crisis being the challenge of the 21st century on account of its present and future disastrous consequences for people, species and planet presents an unparalleled opportunity to transform present international systems that enrich the few, impoverish the many and imperil the planet. A paradigm shift is to take place in thinking and institutional renewal to profit from this unparalleled opportunity.

2.      Climate change being an ecological change has to be reversed ecologically, i.e. this ecological reversal is to take place through the efficient use of renewable energy technologies, the de-carbonization of industry and REDD. New strategies are needed to re-inhabit the Earth to fully make that ecological reversal and the pursuit of a sustainable energy future possible. Societies have to be re-powered quickly, formidably and fairly, so that low-carbon living becomes the norm.

3.      Ecological indebtedness of industrialized countries in the North is to be recognized as a historical fact with great ethical import. It was both market and centralized economies in the past that externalized air pollution leading to climate crisis and thus both economic systems are guilty of past and present  “atmospheric occupation”.

4.      Agreement on capping emissions is politically not possible globally; scientifically determined caps can be used nations to determine the price of a ton of carbon and legislate a schedule of carbon fees accordingly. The Copenhagen Accord of COP 15  “took note” of the need for MRV (monitoring, reporting, verifying) of carbon emissions;  COP 16 in Mexico City is to agree on a range of carbon densities and target dates; on the social and ecological costs of a ton of carbon; and consider the establishment of UN Commission on Monetary Transformation to investigate, among others, the feasibility of a carbon-based international reserve currency; decide to accept the offer of Brazil to host the 2012 Earth Summit.

5.      There is value for the proposed UNEP Technical Review panel to evaluate alternative "Whole World" view approaches which would also include the global fee & dividend approach proposed in the TFD system.

6.      The cap-and-trade carbon reduction methodology and to a lesser extent other capping approaches is fatally flawed, because

a.                   It is fast, formidable and fair. Cf. Dr. Michael Dorsey of Dartmouth College

b.                  It believes that carbon trading plus off-sets can cope with the global climate crisis

c.                   Cap-and-trade does not address itself to all sources of GHG emissions and is not  formidable enough, for it addresses itself to those that can measured and commodified. Apart from the dubious ethical issue of commodifying a global commons such as the atmosphere, and the opportunity for gaming in this unregulated carbon market,  it does not address itself to the emissions from land use, destruction of forests, etc. In other words, its scope and scale is too limited.

d.                  The results of the cap-and-trade system in terms of actual reduction of emissions are poor, its greatest drawback.

7.      The carbon tax carbon reduction methodology is a little more acceptable, because, unlike the cap-and-trade which focuses on the price of carbon in a volatile carbon market, carbon taxes are set by legislators who use the fiscal system to tax different carbon users, either upstream or downstream.

8.      The cap-and-dividend carbon reduction methodology has advantages over the methodologies in statement 6 and 7, because it does not permit offsets and returns the income of the auctions of the carbon emissions permits in a fair way to energy consuming families who have to pay higher energy prices.

9.      The Cap & Share approach is based upon an equal sharing of carbon emissions permits to all adults in a country or region or in the world. The latter, the global Cap & Share, would create ecological debtors in the North and ecological creditors in the South. Various ways are devised to trade those permits that are not needed by an individual with a low carbon footprint

10.  There Fee & Dividend approach to reducing carbon emissions and in the process push the private sector to develop alternative energy technologies does include carbon emissions permits that are issued or auctioned under a carbon cap. It is fee based to upstream users of fossil fuels by having a schedule of prices per ton of CO2 legislated the revenue of which are returned to legal residents. The Fee & Dividend approach does not include a global dimension with its demand for climate justice

11.  The  Tierra Fee & Dividend system adds an international monetary dimension to the  Fee & Dividend system that includes the historical fact of ecological indebtedness of countries in the North.

12.  The Tierra Fee & Dividend System also includes the monetary dimension of carbon-based international reserve currency of the Tierra, which is part of a UN based International Clearing Union as proposed by John Maynard Keynes in 1944 .These  Tierras are monetized carbon emissions permits, that like in a monopoly game, are equally distributed to residents 15 years and older. This “quantative easing” by Tierras becomes part of a nation’s carbon account in its balance of payments, thus constituting an institutionalized funding mechanism for mitigation and adaptation measures and development. In order for the tripartite TFD system to work the public sector has to reclaim the privilege of fractional reserve banking from the privately-owned banking systems, so that the regulation of international financial transactions via the Tierra International Clearing Union becomes possible and transparent. Banks become utilities which would also not engage in securities dealing.

 

 

Jan
12

China's currency policy and the climate crisis

Post By gaia1 in BRIC Countries

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.

 

Imagine what would happen if the USA and China were to engage in negotiations towards this TCS or similar system and bring the EU and other members of the G20 along. An agreement of such transformational nature would to a great extent resolve the climate crisis and, in the process, produce a fair, sustainable, and therefore, stable international monetary system, the glue for fair, sustainable, and therefore, stable international financial, economic and commercial systems.


 

Jan
09

TCS system and cap-and-trade

Post By gaia1 in Climate crisis

 

On January 13, 2010 the second carbon trading summit will be held in New York City where utilities, corporations, banks, hedge funds, carbon aggregators and brokers are considering how they can profit of the emissions market that is projected to reach $1 trillion by 2020. It is significant that the three expensive workshops that are offered mostly deal with carbon offsets, the weakest part of US and EU-ETS’s cap-and-trade legislation.

 

At the same time a citizens Climate Justice protest will be held, in preparation of which non-violent training, panel discussions and other sessions are being planned.

 

What is the position of the International Institute of Monetary Transformation and its TCS system in respect to this Summit and to carbon trading in general? The following 12 statements are part of its tripartite carbon reduction approach of the TCS system.

 

1.      The climate crisis being the challenge of the 21st century on account of its present and future disastrous consequences for people, species and planet presents an unparalleled opportunity to transform present international systems that enrich the few, impoverish the many and imperil the planet. A paradigm shift is to take place in thinking and institutional renewal to profit from this unparalleled opportunity.

2.      Climate change being an ecological change has to be reversed ecologically, i.e. this ecological reversal is to take place through the efficient use of renewable energy technologies, the de-carbonization of industry and REDD. New strategies are needed to re-inhabit the Earth to fully make that ecological reversal possible.

3.      Ecological indebtedness of industrialized countries in the North is to be recognized as a historical fact with great ethical import. It was both market and centralized economies in the past that externalized air pollution leading to climate crisis and thus both economic systems are to be blamed by engaged in this “atmospheric occupation”.

4.      Agreement on capping emissions is to be guided by science, not politics. As such the Copenhagen Accord is wholly insufficient, though the MRV (monitoring, reporting, verifying) agreement is valuable as a first step towards a FAB (fair, ambitious and binding) agreement.

5.      There is no efficient solution to the global climate crisis unless a global and "Whole World" view is taken: the pace of a “nation-by-nation” approach does not match the urgency of resolving the climate crisis.

6.      The cap-and-trade carbon reduction methodology is fatally flawed, because

a.       It does not take a "Whole World" view approach

b.      It believes that carbon trading plus off-sets can cope with the global climate crisis (offsets are dealt with in two of the three workshops of the above Summit, one focusing on the international, the other on the US scene.)

c.       Cap-and-trade does not address itself to all sources of GHG emissions, for it addresses itself to those that can measured and commodified. Apart from the dubious ethical issue of commodifying a global commons such as the atmosphere, and the opportunity for gaming in this unregulated carbon market,  it does not address itself to the emissions from land use, destruction of forests, etc. In other words, its scope is quite limited.

d.      The results of the cap-and-trade system in terms of actual reduction of emissions are poor, its greatest drawback.

7.      The carbon tax carbon reduction methodology is a little more acceptable, because, unlike the cap-and-trade which focuses on the price of carbon, carbon taxes are set by legislators who focus on the quantity of emissions themselves. Moreover, this methodology has greater international application than cap-and-trade, but still does not take a "Whole World" view approach

8.       The cap-and-dividend carbon reduction methodology has advantages over the methodologies in statement 8 and 9, because it does not permit offsets and returns the income of the auctions of the carbon emissions permits in a fair way to energy consuming families who have to pay higher energy prices. However, it, as in the Van Hollen legislation, lacks an international focus because it does not start out with a "Whole World" view approach.

9.      There are several "Whole World" view approaches to climate crisis of which global Cap & Share and Kyoto2 are examples. They and others are due to be evaluated by UNEP Technical Review panel in the near future.

10.  The Cap & Share approach is based upon an equal sharing of carbon emissions permits to all adults in a country or region or in the world. The latter, the global Cap & Share, would create ecological debtors in the North and ecological creditors in the South. Various ways are devised to trade those permits that are not needed by an individual with a low carbon footprint.

11.  The Tierra Cap & Share system adds an international monetary dimension to the global Cap & Share approach by having the carbon emissions permits become Tierras, constituting a country’s reserve currency, the amount of which is based upon the number of  residents 15 years and older. These monetized carbon emissions permits would become part of a nation’s carbon account in its balance of payments, thus constituting an institutionalized funding mechanism for mitigation and adaptation measures and development. The system would operate in a similar fashion as the International Clearing Union concept proposed by John Maynard Keynes for the Bretton Woods UN Monetary and Financial Conference of 1944. By introducing this carbon-based international reserve currency which operates like an updated Keynesian Bancor, the international monetary system becomes part of humanity’s battle to drastically and effectively reduce GHG emissions from fossil fuels and land-use by re-powering societies and re-inhabiting the Earth.

12.   In order for the tripartite TCS system to work the public sector has to reclaim the privilege of fractional reserve banking from the privately-owned banking systems, so that the regulation of international financial transactions via the Tierra International Clearing Union becomes possible and transparent. Banks become utilities which would also not engage in securities dealing.

 

 

Jan
07

Four main arguments and six challenges of the Tierra Cap&Share system

Post By gaia1 in Tierra Currency

There are three main parts to the TCS system which are like the three legs of a stool. They support this tripartite monetary proposal to deal with the climate crisis. Though they are inextricably connected, each of these three components can be considered to constitute a subsidiary argument to the TCS system as a whole. The fourth argument consists of the feasibility of having these three components combined into one system, i.e. the TCS system.

 

I will indicate in each argument the level of acceptance as I presently believe to be the case.

 

1. Monetary argument for a carbon-based international reserve currency

  • Need to move away from present reserve currency—increasingly acceptable given the June 2009 UN Stiglitz Commission’s report
  • Need to be base the new international reserve currency on a carbon standard rather than basket of currencies, purchasing power parity, etc—not yet cogently presented publicly. The TCS system book would be a primer.

2. Cap & Share carbon reduction approach argument

  • Advantages over cap-and-trade, cap-and-dividend and other carbon reduction methodology – uphill battle since early 1990s
  • Advantages over other "Whole World" view approaches—will become evident after the UNEP Technical Review of these approaches.

3. Public control of money creation and regulation of financial flows

  • Regulation of financial flows accepted, though reform legislation weak. Flows to be part of a Tierra International Clearing Union system
  • Substantial movement in the US and UK to remove the fractional reserve banking from the privately-owned banking systems.

4. Feasibility of having all three arguments for the tripartite TCS system

  • TCS system is not publicly presented yet, so public acceptance is not known
  • Widely accepted is the notion that innovation is often a new way of using existing ideas—so acceptance of parts or the totality of the foregoing three arguments is the beginning of the acceptance of the TCS system.

 

Four of the six main challenges are the four arguments presented above. Though parts in the four arguments are acceptable to a certain degree, while other parts are still unacceptable, all four arguments still present a challenge, particularly also their combination in argument 4.

The other two challenges of the TCS system can be considered foundational challenges. They constitute the foundation upon which the TCS system is built. One deals with a sustainability economics framework that stands in opposition to the neo-liberalist market framework that is failing both people and planet. The other deals with a value framework that integrates social and ecological values as proposed in the 2000 benchmark version of the Earth Charter.  It was at the beginning of the June 2009 UN Conference that GA president Father Miguel D'Escoto Brockmann MM eloquently introduced the Earth Charter as a value document for further planning on the financial and monetary crisis and its impact on development. http://www.un.org/ga/president/63/statements/econferenceopen240609.shtml  He advised the participants to go beyond “controls and corrections” of the present system and seek transformational change based on its vision and its ensuing global ethics.

It will have become obvious that the proposed TCS system, however valid and useful, is far from being adopted in the next couple of years. It constitutes a monetary transformation not simply a monetary reform. People are accustomed to adopting reforms, far less so transformations, let alone in a field that is arcane to most.

 

What may happen is the growing acceptance of the two foundational challenges and parts of the four challenges that are associated with the components of the tripartite TCS system and their integration. It is up to enlightened states and effective CSOs to help advance the larger vision of a fair, sustainable, and therefore, stable international monetary system that would be used to reduce the ecological indebtedness of countries in the global North for the benefit of people and planet in both the global North and South.