The Tierra Monetary Pathway as a carbon-based bancor or Bancor2

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.[1] 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.[2] 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.[3] 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.”

The G2 Integrated Partnership

The year 2009 in respect to international reserve currency issues was characterized by increased questioning of the US dollar both as a reserve and vehicle currency. In March the UN Stiglitz Commission reported the need for transiting from a national currency like the US dollar or a regional currency like the euro to a non-national reserve currency without going into detail. China as leader of the BRIC countries in various ways made known its position for a “supra-sovereign currency” and, adding deed to intent, by starting to buy SDRs as reserves. The Obama Administration played mute to these concerns.

It was Fred Bergsten, the director of Peterson Institute of International Economics, who suggested that the US form a G2 partnership with China to come to a negotiated agreement about the untenable situation of a deficit and surplus country that made the monetary, financial, economic systems unstable. Both the USA and China are to stop their roles being an addict and a dealer feeding the addict with low interest financing for its over-consumption. Thus, it would make sense for both countries to transition to a negotiated phase where dollars can be exchanged for SDRs rather than to be subjected to abrupt changes in the international reserve structure which would cause serious disruption in both countries on many levels.

While supporting this position as a starting point, I would propose to expand the focus of the G2 partnership to the challenge of the climate crisis. It would pursue an integrated solution to both the economic and climate crises and the associated financial and ecological indebtedness of nations by simultaneously planning for their solutions rather than dealing with them singly and sequentially. The issue of a non-national or supra-sovereign reserve currency would lend itself well for such purpose.
By basing that international reserve currency on a carbon standard and making carbon accounts part of a nation’s balance of payments not only the international monetary system would be transformed, but also the international financial, economic and commercial systems. It is its role as glue of those systems that makes the international monetary system such pivotal system. A small, but profound change as proposed in the Tierra Monetary Paradigm would restructure those present systems which still enrich the few, impoverish the many and imperil the planet.

How realistic is the emergence of such G2 Integrated Partnership? Can it become an essential component of the New Foundation philosophy that the Obama Administration is projecting? Can China accept its expanded international role to make such partnership happen? That latter question is partly answered by the IMF executive director for Japan, Daisuki Kotegawa. After noting that China’s increase in voting rights in a restructured IMF would result in their taking Japan’s second place and that the eventual outcome still depends on negotiations among member nations, he stated that “it's not clear whether the Chinese government is willing to shoulder the rising responsibility accompanying a greater say." Is China following the advice on leadership that Deng
Xiaoping gave in the late 1970s when he said: “Observe calmly; secure our position; cope with affairs calmly; hide our capacities and bide our time; be good at maintaining a low profile; and never claim leadership.”

Kyoto2 and the Tierra Monetary Paradigm

KYOTO2 AND THE Tierra Monetary Paradigm

18 November 2009

The main argument of Oliver Tickell’s 2008 book Kyoto2-how to manage the global greenhouse is that the Kyoto protocol, the first tentative step towards avoiding the threat of global heating, has failed and that a new course of action is needed. Like other "Whole World" view approaches to the climate crisis, Kyoto2 advocates an equal per capita sharing of the environmental space, including the atmospheric space. His website www.kyoto2.org  intends Kyoto2 to be “a framework for a new climate agreement under the Climate Convention intended to replace the Kyoto Protocol beyond 2012. It aims to be effective by delivering the UNFCCC’s objective of stabilizing the GHG concentrations at “a level that would prevent dangerous anthropogenic interference with the climate system ... within a time frame sufficient to allow ecosystems to adapt naturally to climate change, to ensure that food production is not threatened and to enable economic development to proceed in a sustainable manner."  It wants to be efficient by  using auctions, open markets, targeted expenditures and appropriate regulation, while minimizing accounting and compliance overheads, to provide 'the gain without the pain'. It wants to be equitable by addressing the needs of poor people and poor countries, and by mitigating the impacts of climate change for the benefit of both present and future generations.

The Tierra Monetary Paradigm agrees with Kyoto2’s detailed analysis of the failure of the present Kyoto protocol’s approach. It has hardly produced any significant carbon reductions because its flexibility mechanisms do not work. The cap-and-trade system in Europe and the one that is being proposed in the USA are more favorable to energy companies and their carbon markets than to a decrease in atmospheric pollution. The Tierra Monetary Paradigm also agrees with Kyoto2 that radical course of action is needed. Here the two approaches diverge.

The main difference is the point of departure. While Kyoto2 addresses itself solely to the climate crisis, the Tierra Monetary Paradigm addresses itself to both the climate crisis and the economic crisis or to the longer term associated challenges of financial and ecological indebtedness among nations. It stipulates that both crises have to be approached simultaneously. If Kyoto2 were to be accepted and implemented and the world would still be afflicted with high unemployment or with another economic crisis on account of the lack of fundamental reforms, the overall outcome would be ineffective. By tackling both the economic and climate crises simultaneously, the Tierra Monetary Paradigm provides a pathway of solving the shorter economic crisis through solving the climate crisis. This is done not only through the monetary transformation of basing the new international reserve currency on a carbon standard, but also by investing in renewable energy technologies.

Overview of stepts of the Tierra Monetary Paradigm

The Tierra is a carbon-based international reserve currency that can be pursued as a stand-alone monetary reform, or as part of monetary paradigm that is designed to be a pathway to resolving the economic and climate crises and the financial and ecological indebtedness of nations. In this integrated form the Tierra Monetary Paradigm is a carbon reduction methodology based upon a transformed international monetary system. The Paradigm is built upon the adoption of the supranational, carbon-based international reserve currency of the Tierra which would replace the national or regional reserve currencies of the dollar, euro or yen. Its two main pillars are the Cap & Share approach to reducing GHG emissions and the public control of a nation’s money creation system.

Cap & Share is one of the "Whole World" views that include others such as Cap and Dividend, Contraction and Convergence, Greenhouse Development Rights, Kyoto2 and Reduce and Invest. The steps in Cap & Share presented in the following diagram are from www.capandshare.org .

These five steps are also part of the application of the cap-and-share approach in the Tierra carbon reduction methodology, where additional steps are needed given its fundamental connection with a transformed international monetary system. Thus, the front-end of the Tierra Monetary Paradigm that underlies the Tierra carbon reduction methodology consists of steps to establish the monetary architecture for the Tierra

1. Pre-capping and sharing monetary preparation
a. Replacement of existing reserve currencies and a possibly transitional SDR by the supranational, carbon-based Tierra
b. Development of a carbon standard to monetize the Tierra and determination of its price and procedures to adjusting it
c. Establishment of fixed exchange rates based on carbon standard
d. Establishment of balance of payments mechanism for settling both the financial and ecological accounts
e. Establishment of UN Monetary Board
f. Establishment of national Tierra Administrative Boards
g. Public control of central banks and their banking systems
2. Capping of the GHG emissions
a. Use of the best scientific data of the IPCC and other sources
b. Emphasis on the ethical import of setting targets
c. Political agreement by the CoP of the UNFCCC
3. Sharing of the carbon emissions permits (CEMPs)
a. Agreement on the equal allocation of CEMPs
b. Development of CEMPs into Tierras, i.e. monetization
c. Transmission of Tierras to a nation’s Tierra Administrative Board that functions as an independent trust
d. Determination of impacts on money supply
4. Selling and buying of monetized Tierras
a. Among nation states in settling financial and ecological indebtedness
b. Among citizens when the Tierra becomes a vehicle currency to be decided by a nation’s Tierra Administrative Board
5. Incorporating the allocated shares in the carbon account of a nation’s balance of payments.
a. Development of the surplus or debit carbon account
b. Balancing both the financial and carbon accounts
6. Overseeing the Tierra balance of payments by the UN Monetary Board
a. Use of IMF/WB resources, particularly informational ones
b. Working closely with UNCTAD and gradually phasing out the WTO and its agreements
7. Enforcing the integrity of the Tierra carbon reduction methodology with its monetary architecture, particularly its balancing mechanism under the ever tightening carbon cap.

While Cap & Share can be started in one country, the Tierra Monetary Paradigm needs an ecologically debtor country in the North and ecologically creditor country in the South to get started. In that way carbon debts and credits can be balanced and a transfer of Tierras can flow from North to South where they can pay for the settling of legitimate financial debts and for imports that are needed for development and climate mitigation and adaptation measures.

The declining dollar and the Tierra

 In today’s New York Times Javier C. Hernandez headlines his”Stocks and Bonds” section with “Dollar’s Drop Lifts Shares, Gold and Oil.”  While the dollar has lost some 50% against the euro, trading at $1.4976 Secretary Geithner does not seem happy, at least publicly. Throughout the past week, at meetings of the Group of 20  in Scotland last weekend and in Tokyo earlier this week and today in Singapore’s APEC meeting, Mr. Geithner believes “very deeply that it’s very important” for the US economy to have strong or robust dollar. He also “acknowledged, according to Reuters, that the United States carried a special burden for protecting the currency’s value because it is the global reserve currency.”

            I would like to see that the Obama Administration were to apply his “New Foundation” philosophy to the dollar, particularly in its role of the major international reserve currency unit. It seems by leaving the dollar to fluctuate the impression is given that the Administration is happy to see this slow and steady decline of the dollar: it promotes exports and reduces the debt to domestic and foreign lenders.

            China, other BRIC countries and particularly the June UN Stiglitz Commission’s report are advocating a non-national international reserve currency unit. While a new reserve unit could be based upon a large basket of currencies or even special SDRs, basing a new unit on a carbon standard such as the Tierra had many advantages. The monetary, economic, commercial and ethical case for the Tierra was made in the October 10 blog.

            Now I want to point out that it would be possible to introduce the Tierra, not as part of a paradigm shift in monetary relations, but as a stand-alone currency unit, i.e. without its two pillars of the Cap & Share approach and the public control of the money creation system. This would expedite its acceptance, but not its effectiveness. It is the Tierra Monetary Paradigm as a whole together with its two pillars that makes for a transformational change in both the monetary, financial, economic and commercial systems. It presents a pathway, not a blueprint to resolving the economic and climate crises and the financial and ecological indebtedness among nations.