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Smart monetary power in the 21st Century

Post By gaia1 in TFD system

Smart monetary power in the 21st century

March 26, 2011

Those nations that have the most effective, attractive and persuasive sustainability narrative will possess the greatest monetary power in the 21st century. They will be networked governments that have developed smart monetary power, a combination of hard and soft power, in this century’s chaotically distributed power.

             Power comes in two forms according to Joseph Nye, academic and statesman. Power among states that is characterized by rises and falls and power that is diffused among many other political participants, including non-state actors such terrorist or organized crime organizations. This diffusion of power has left more and more things outside the control of even the most powerful states.  To remain in democratic control states must leverage their smart power which is to combine the hard power of coercion of military might and payment by economic might with the soft power of persuasion and attraction. Doing so will often require wielding power with others rather than over them. This thinking is also part of the new concept of networked governance.

These two forms of power can be seen operating on three levels: the top level of the U.S. military superpower, the middle level of the major economic actors constituting a multi-polar world and the uncontrolled bottom level that consists on non-state actors, large TNCs, large CSOs.

Smart power, exercised by those nations that combine hard power of military or economic might with the soft power of persuasion and attraction, generally believes not in a zero-sum game, but in positive sum game where all parties consider themselves to be engaged in a win-win situation in their pursuit of global public goods.

Applying this smart power framework to international monetary relations nations that pursue smart monetary power are those that combine the hard power of their strong currencies with the soft power of persuasion in the pursuit of an equitable, sustainable, and, therefore, stable monetary system. It is such smart monetary power that should be exercised not only by the present nations with hard currencies, but also by nations such as the BRIC nations which in the future will also have currencies that can be used as reserve and transactional currencies as part of a reformed international monetary system. The exercise of such smart monetary power is particularly needed if several of those nations decide to lead to forge ahead along the transformational route and pursue an international monetary system that would be based upon a 21st century-appropriate monetary standard. It would be an essential ingredient for a global governance system that would be based upon such standard such as the one proposed in the Tierra Fee & Dividend global governance system.



Two monetary routes in these carbon-constrained times

Post By gaia1 in IMF/WorldBank

Two monetary routes for these carbon-constrained times

This is the comment on March 23 that was made to the IMF conference in the beginning of March.

Macro and Growth Policies in the Wake of the Crisis” was a significant IMF conference on March 7 and 8 where frank discussions prevailed about past economic theories and about new paths to be hewed by economists.

David Romer has pointed out in his blog post about the gap of not dealing with unemployment in this important conference. I think there is a second gap, the treatment of which would have framed the conference more realistically. It is the gap of micro/macro economics and the climate change challenge.

Though dealing with this challenge can be done in different economic branches two routes, still mainly unexplored, can be envisaged for monetary economists.

It is the reformist route of developing green bonds that would function as an important reserve asset, somewhat similar to Global Green Backs proposed by Stiglitz (not at the conference) and the transformational route that would introduce a carbon monetary standard. While the former route is being discussed by some monetary economists, the latter route is not.

Basing the international monetary system on a carbon standard not only transforms that system, but also the financial, economic and commercial systems which are bound together by the glue of the monetary system.

One of the main advantages of exploring this transformational route is the potential of a carbon-based international monetary system to function as the linchpin of a global governance system that integrates the social, economic and environmental challenges in these carbon-constrained times. Such system could make a veritable contribution to the Rio 2012 Earth Summit where nations will come together to consider the potential of a Green economy as part of an integrated approach to sustainable development. As part of the preparation for this axial conference I prepared a “think-piece” about the transformational route that is available on 



From FTT to TFD

Post By gaia1 in TFD system

From the FTT to the TFD

10 March 2011

A few days ago the European Parliament passed the Financial Transaction Tax by accepting the    Podimata Report (Podimata is a Greek Member of the European Parliament) with a vote of 360 to 299. This is a positive political signal, although the parliament has formally
not the competence to decide on taxation. However, this vote fits well in into the upcoming meeting of the European Council and of the Euro group on March 11. Merkel has announced that she will - together with the Austria chancellor - try to get the Euro zone on board.  

The acceptance of the FTT by the EU would be a very small step towards the overhaul of the international monetary and financial system with its financial imbalances, currency disputes, currency speculation and a global reserve system that costs non-hard currency some $100 billion annually. By overhauling, not only reforming the international monetary system the financial, economic and commercial systems would be very substantially changed given the monetary system, which, as glue, binds them together. The monetary system is not only a lubricant to make those systems run smoothly, it can also be considered the linchpin of those systems. By overhauling or transforming this monetary system international community would change the present world (dis)order that enriches the few, impoverishes the many and imperils the planet.

A serious candidate to overhaul or transform the international monetary system is the TFD. The Tierra Fee & Dividend is a global governance system that uses a carbon-based international monetary system to combat the climate crisis by advancing low carbon and climate-resilient development.   Note how this global governance system integrates the economic, social and environmental dimensions of the sustainable development paradigm, a major concern for the Rio 2012 Earth Summit. How this can be done is described in one of the think pieces of the Stakeholder Forum, one of the world’s preeminent civil society organizations engaged with the Rio process.

During the 2nd PrepCom (preparatory meeting) of the Rio Summit at the UN Headquarters  in the beginning of this week  I spoke with three Hungarian governmental representatives—a senior advisor and two executives in the Ombudsman office. It is through them that I will suggest that Hungary having the presidency of the EU start the process of discussing the TFD or for short the Tierra Solution. (The Tierra is the unit of account of the TFD’s carbon standard.) Hopefully, the EU may take the lead to have other nations sponsor the UN General Assembly Resolution to establish the UN Commission of Experts on Monetary Transformation, Climate Change and Sustainable Development to fully investigate the feasibility of the TFD. Having taking the lead in the FTT, the EU could take the lead in the TFD.



International monetary reform according to France

Post By gaia1 in Transformation versus reform

International Monetary Reform According to France

5 March 2011

Sarkozy has been threatening to reform the international monetary system for some time and at different venues. He has rightly placed the U.S. dollar’s position as a major element for that reform. Like de Gaulle in the sixties he now objects to the “exorbitant privilege” of having one country’s currency function as the world’s currency. However, after his January visit to the White House he has been forced to tone down his proposals about diminishing the role of the U.S. dollar in his reform efforts. The importance of the global position of the U.S. dollar and its “exorbitant privilege” has become topical, not in the least by the recent Eichengreen publication by that name.

His finance minister Christine Lagarde, an iron lady according to some, is singing the same diminished tune. A few days before the Paris meeting of the G20 finance ministers and central bankers on the February 19 weekend she Lagarde, speaking ahead of a G20 finance ministers meeting in Paris on Friday and Saturday, said that the world had to move on from the 'non-monetary system' it now has to one 'based on several international currencies'. She wants the yuan to become part of the SDR basket of currencies, so that China does not need to accumulate huge foreign reserves and thus reduce financial imbalances.

Those imbalances with the U.S. dollar are, however, not only due to China’s exchange rate policies and reserve positions. They are also due to U.S. dollar’s position as the world’s main reserve and transaction currency which is able to fund the huge US deficits. It is most telling that on March 4 Lagarde repeated on a Bank of France Conference that France does not want to undermine the dollar. "We are not trying to find the perfect system. We are not trying to restore fixed exchange rates around the globe. We are not trying to or thinking of trying to unsettle major currencies -- particularly the U.S. dollar.”  France wants to identify the “areas of coordination” and also seeks to "reduce the need for the accumulation of foreign reserves" which is clearly the result of mistrust and lack of confidence, and is not the optimal use of reserves, Lagarde noted. Does she mean Resources instead of Reserves?

Why should France not suggest the perfect international monetary system and start building towards it? What should it not support a UN Commission to explore a perfect international monetary system, a system that very probably would not need a costly global reserve system



Fixing the International Monetary System?

Post By gaia1 in American Monetary Matters


March 1, 2011

Uri Dadush, a Harvard trained economist with World Bank experience and director of the international economics program of the Carnegie Endowment for International Peace in Washington D.C. believes that it does not need fixing, because it is not broke. He reviewed the system’s core—the exchange rate system—during the Great Recession and concluded in his article of February 24, 2011: “The currency tensions that do exist point to the need for changes in the domestic policies of the major economies, rather than an overhaul of the system itself.” He presents evidence that the system coped well with The Great Recession in terms of global misalignments of exchange rates and the currency regimes of “financially Integrated Countries” and “financially close countries”.  [i]

Many economists have pointed to the Triffin Dilemma where one country’s currency functions at the same time as a global reserve and transaction currency. Thus, a dollar-centric international monetary system has a built-in structural flaw that necessarily causes financial imbalances.

A most authoritative statement about this structural flaw was made by Chairman Bernanke in his November 19, 2010 speech before the Central Bankers Conference in Frankfurt.[ii] After analyzing the two-speed recovery, the unemployment situation in the USA and defending the Fed’s two events of quantitative easing he concludes: “Thus, it would be desirable for the global community, over time, to devise an international monetary system that more consistently aligns the interests of individual countries with the interests of the global economy as a whole. In particular, such a system would provide more effective checks on the tendency for countries to run large and persistent external imbalances, whether surpluses or deficits.”[iii]

Given the need for overhauling the international monetary system and arguing that it can be used to deal with this century’s most urgent challenge of climate control, the Bernanke conclusion presents an opening for an equitable, sustainable, and, therefore, stable monetary system that is based upon a carbon standard.


[ii] Robert Morley in the Trumpet website of the Philadelphia Church of God headlines his reaction by “Bernanke: The Dollar System Is Flawed” and concludes that “..with faith in the dollar broken, the government unable to borrow money and a global trade was ravaging the U.S. economy,  America will pine  for the structurally “flawed” but comparatively good days.”