Post By gaia1 in Transformation versus reform
MONETARY EVOLUTION: From payments systems to a carbon-based global governance system
Wednesday, January 19, 2011
The earliest phase of monetary evolution can be considered to consist of the barter system. On account of its limitations humanity without abandoning it altogether quickly engaged in using all kinds of materials such as cowries, nails as means of payments. Greater transnational interaction led to the introduction of precious metals of silver and gold as means of payments. Their value was clearly defined in terms of weight and price. Thus a simple monetary system came into existence that worked reasonably well till about the beginning of the 20th century.
This monetary system came to an end on account of two world wars in the 20th century and its inter-war period. In its place came the Bretton Woods (BW) Institutions of the IMF and Worldbank together with the Bank of International Settlements that was supposedly to be abolished according to the IMF’s Articles of Agreement. At this crucial time of negotiations during the UN Bretton Woods monetary conference of July 1944 the fateful decision was made not to accept the British/Keynes plan of the International Clearing Union with its synthetic, non-national trading currency of the bancor, but to opt for the American/White plan where the dollar was made convertible with gold and thus became the world’s reserve and trading currency. That system lasted till August 15, 1971 when the Nixon Administration closed the gold/dollar exchange window. This decision gave rise to the present non-system of floating exchange rates, currency manipulation and speculation.
Many monetary observers are in favor of a BW II where the 1944 bancor trading currency would be replaced with another synthetic reserve currency. One candidate is the IMF’s Special Drawing Rights (SDRs) which was created around the 1970s but hardly used until the IMF was told to issue $250 billion worth at the height of the financial panic in 2009. Unbeknownst to many of these observers is the fact that Keynes considered the International Clearing Union to be only the beginning of a new international monetary system. His view was “more ambitious and innovative insofar as its underlying logic included a framework for global governance” according to world-systems specialist Marc Pilkington in his 2010 article for the American Sociological Association. Keynes wrote: “The Clearing Union might become the instrument and the support of international policies in addition to those which it is its primary purpose to promote. This deserves the greatest possible emphasis. The Union might become the pivot of the future economic government in the world.”
BW II should not only consist of an international reserve or trading currency, but of a global governance system that would respond to the real exigencies of the 21st century. Given that life on the planet during this century will be mostly determined how humanity responds to the severe global problem of climate change, it would make sense to put his human system of international monetary relations in the service of dealing with the climate problem. This is possible by using a carbon monetary standard for the 21st century international monetary system. Such standard would be set by nations working together rather than by the market. Thus, the standard based upon the targets of the IPCC could be set at a specific tonnage of CO2e per person.
The proximity of a nation’s decarbonization level to this universal carbon standard would determine the strength of its economy and its currency. Thus, the value of a nation’s currency would not be floating against other currencies but would be fixed within a short band to the carbon standard. Consequently, there would be no need for nations to keep hard currency reserves in their balance of payments accounts, because their own currencies would be convertible. Also, a costly global reserve system that costs non hard currency nations some $100 billion annually would not be needed anymore.
Nations can also decide to go directly to the establishment of a world currency within this carbon-based international monetary system without going to the laborious step of determining the value of each nation’s currency. The value of this world currency, called the Tierra in the monetary global governance system proposed by the International Institute for Monetary Transformation, would be set not by the market but by governments using procedures that would be part of the Articles of Agreement.
Carbon balances between nations in this carbon-based international monetary system would have to be settled via their balance of payments. So, nations do not only have to balance their financial imbalances, but also their carbon or ecological balances. Fortunately, nations in the global North who are financial creditors, but carbon debtors can negotiate with nations in the global South who are financial debtors and carbon creditors to settle those types of imbalances by negotiating exchanges of one for the other.
Additional components of this monetary global governance system are a global central bank and a global monetary court. The former administers, monitors, regulates and spends credit into circulation without depending on privately-owned banking systems which would have become utilities without the privilege of money creation; the latter settles the disputes that would arise in the operations of this global governance system.
This global governance system phase of monetary evolution goes beyond the many monetary reforms that are presently being suggested. Even transitioning from the reserve currencies of the US dollar and the euro to a non-national reserve currency as advocated by the UN Stiglitz Commission and by the BRIC countries in 2009 is still in a stalemate, particularly given that the U.S. government wants to stick to the US dollar as reserve currency without having a monetary vision for the future. The January 2011 Senate bill is a case in point. As long as nations cannot decide on this first step of a non-national reserve or trading currency, the prospects of this 21st century phase of a carbon-based global governance system are dim. However, the present geopolitical shifts, the increasingly disastrous effects of climate change, the shortage of financing for climate and development measures and the need for new money beyond the transfer of funds from debt-laden and austerity-budget constrained nations in the global North are some of the reasons that could lead to the advent of the needed Great Monetary Transformation of the 21st century.