Post By gaia1 in Tierra Currency
SOUND MONEY FOR THE 21ST CENTURY
Frans C. Verhagen
Submitted to the New York Times’ OPED editors
Saturday, February 04, 2012
Sound or hard money has been mentioned many times in the present Republican campaign, particularly by Ron Paul and less so by candidate Gingrich. The latter wants to establish a Gold Commission, following the example of Reagan in the 1980s. Charles Kadlec, a contributing blogger for Forbes Magazine, wrote an overview article on the gold standard on 1/23/2012, well before the Florida primary, in which he supported Gingrich’s position. He argued that Gingrich has a leg over Romney and Santorum because a gold standard policy “enjoys a clear plurality of support among Republicans, Democrats, blacks, whites, hispanics and individuals across all income categories.” He pointed to evidence of this plurality by referring to a poll in October 2011. “When the Rasmussen polling firm last October asked 1000 likely voters if they were “favorable or unfavorable about returning to the gold standard,” 44% were favorable versus 28% unfavorable. However, when the respondents were asked: Would you “favor or oppose returning to a Gold Standard if you knew it would reduce the power of bankers and political leaders to steer the economy?” those in favor increased to 57% versus only 19% opposed. Floyd Norris in his “High& Low Finance” column of February 3 believes that history is repeating itself in these presidential debates where candidates propose gold commissions but do not follow up on their recommendations. He points to a survey by the University of Chicago in January of 40 economists who, with very few exceptions, have dim views of the feasibility of a gold standard. Should this survey not have included a question about a non-debt financial system as proposed by many outstanding economists such as Yale’s Irving Fisher in the 1930 as their response to the Great Depression?
While this superficial monetary debate is taking place in the Republican presidential campaigns in the US, globally the international monetary system is characterized by a wild west that is alternatively known as monetary statecraft, about which Cornell University economist Jonathan Kirshner has written. Both the US and China are engaged in global monetary policies that are short-sighted and prevent financial and economic renewal and transformation.
The U.S. government still clings to the U.S. dollar as the world’s major reserve and transaction currency heaping up deficits in the process and forcing other countries to hold its currency in an expensive global reserve system of some $100 billion annually for non-reserve countries, particularly in the developing world. Notwithstanding the recommendation of the 2009 UN Stiglitz Commission to transition to a Special Drawing Rights or similar regime, it continues to keep the international monetary system out of balance on account of balance of payments debts.
At the same time, this global reserve system and many other factors, such as a high savings rate and renminbi manipulation, makes China, with its $3.18 trillion foreign exchange holdings, the other major power in keeping the international monetary system out of balance. New York Times journalists Bradsher and Alderman’s February 3 article entitled “China Talks of Helping European Debt Rescue” makes clear that China wants to take very little risk in that rescue and demands trade and other preferences, preventing a global economy from growing. China still seems to be refusing to change its euro holdings of strong European countries such as Germany and The Netherlands into investing in euro bonds of weaker European countries. This state of Wild West monetary affairs shows how, at least in monetary terms, China is gaining an upper hand over the US. Such a system is unjust, unstable, and unsustainable. It is unjust because it mostly operates for the benefit of hard currency countries while the rest of the world and the global economy itself suffer. Because the international monetary system is unjust, it is unsustainable, and, therefore unstable.
After having the renminbi become more convertible and part of the SDR basket of hard currencies, it would be in China’s interest to overhaul the international monetary system by transitioning from the SDR, not to a gold standard, but to a carbon standard that is based on a specific tonnage of CO2e per person. Such a system would combat the heating of the planet and decarbonize societies in both the global North and South If such a system were instituted, no global reserve system would be needed anymore. An updated Bretton Woods system along with a Keynes’ International Clearing Union could be developed and a Global Central Bank created. A carbon-based international monetary system could function as the basis of a global governance system, because it integrates the social, economic and environmental challenges of sustainable development, one of the main challenges of the Rio June 2012 Earth Summit. Maurice Strong of Earth Summit fame considers such a system “innovative.” It is also noteworthy that the 2000 delegates at the DPI/NGO Conference in Bonn in early September of last year advised governments in their Declaration to “Rethink the international monetary system to be based on a carbon standard.”
Making monetary justice the guiding principle of global governance, and as such, the basis for the G20 and Earth Summit negotiations would consist of three major challenges dealing with needed transformational changes in the privately-owned banking systems, in the debt-based financial system and in the dysfunctional international monetary system, called criminal by Nobel Prize economist Robert Mundell. First, banks are to become utilities without the privilege of creating money. Second, the financial system is to be based on money or credit which only the government can create and circulate into the economy. The Chicago Plan of the 1930s, proposed by many outstanding economists to deal with the Great Depression, is an example of such a system. The most challenging transformational change of all—the international monetary system-- is to be based upon a carbon standard and governed by a Global Central Bank with its proper administering, monitoring, regulating and money creating functions. This novel concept is presented by the International Institute for Monetary Transformation (www.timun.net) in its forthcoming book entitled THE TIERRA SOLUTION: Monetary Transformation, Climate Change and Sustainable Development. (Cosimo Books, April 2012). Adopting such a carbon-based international monetary system would constitute a global monetary governance system that could be the basis of a comprehensive global governance framework beyond Rio 2012. Those in agreement with this monetary approach could sign on to the international petition on http://www.change.org/petitions/g20-and-rio-summitteers-make-monetary-justice-the-basis-of-your-negotiations.
The above tri-partite system is a possible answer to the question what sound money means in the 21st century. It is in agreement with the monetary principles adopted by the Lincoln Administration in 1865: “Money is the creature of law, and the creation of the original issue of money should be maintained as the exclusive monopoly of national government. Money possesses no value to the state other than that given to it by circulation…… No duty is more imperative for the government than the duty it owes the people to furnish them with a sound and uniform currency, and of regulating the circulation of the medium of exchange so that labour will be protected from a vicious currency and commerce will be facilitated by cheap and safe exchanges.”
Frans C. Verhagen, M.Div., M.I.A., Ph.D., a sustainability sociologist, is the founding president of the International Institute for Monetary Transformation and author of the forthcoming book The Tierra Solution: Monetary Transformation, Climate Change and Sustainable Development