The new carbon standard has several features in common with the historical gold standard. Both monetary systems have standards that fix exchange rates among nations based upon those standards. This leads to stability and predictability because the value of the unit of account stays the same and thus currency fluctuations need not to be taken into account when planning a business transaction or a leisure trip. Of course, prices for goods and services may go up or down based upon many economic and fiscal factors, but they are always expressed in the value of the currency that remains the same.
Both international monetary systems have convertible currencies because they are anchored in a standard that determines the value of the currencies. The gold standard was defined in a precise amount of gold for a precise amount of value in the unit of account (
Both systems have a more or less automatic mechanism of balancing their financial accounts. The balance of payments during the gold standard was accomplished by transferring gold from the debtor nation to the creditor nation. The balance of payments during the carbon standard will be accomplished when carbon-debtor nations transfer Tierras to carbon-creditor nations.
Both systems agree that the present monetary system with its heavily fluctuating exchange rates, rampant currency manipulation and speculation and costly global reserve system has to be removed. There is no standard in the non-system which Nobel laureate Robert Mundell has called a ‘criminal’ system because of its unpredictability.
Why should the carbon-based monetary standard be preferred over the gold standard? There are three main reasons: a philosophical, an ecological and a fiscal reason.
The philosophy of most gold standard proponents is libertarian: less government, freedom to individuals and markets. They are followers of the so-called Austrian school of economics of Friedrich von Hayek and Ludwig von Mises and its American adherents such as Milton Friedman, Murray Rothbard, Judy Shelton and others. Their main supporting organizations are the Von Mises Institute and the Cato Institute. For them the return to the gold standard means that politicians whether central bankers or finance ministers are not able to subject their citizens to their manipulation of the money supply and price level. These monetarists would set a percentage of growth in the money supply and the system of efficient markets would adjust.
The role of government adhered to by economists of Keynesian approach is an active one. It is to regulate the financial sector and to direct the economy in a way that a level playing field is created, so that private enterprise can flourish within clearly determined and fair economic framework. In this conception of the role of government the question is not less or more government, but the right level of government. It is this role of government that underlies the Tierra Fee & Dividend system where the international monetary system is used to make the Fee & Dividend carbon reduction method more effective in reducing GHG emissions.
The ecological reason why the carbon-based international monetary system is to be preferred above the gold-based one is its ability to effectively deal with the climate crisis. By having nations anchor their currencies on the Tierra—its unit of account—they are forced to engage in decarbonizing their societies by reducing coal-fired power plants, investing in renewable energy technologies, increasing energy efficiency and conservation, etc. The strength of their economies is mainly determined by their energy infrastructure which in turn is reflected in the strength of their currencies as reflected in the amount of Tierras.
Finally, the ability of providing extra liquidity to global economic system makes the carbon-based Tierra Fee & Dividend system superior to a gold-based international monetary system that does not deal with the century’s most important ecological challenge and that is prevented from having governments take an active role in determining a pathway to an equitable, sustainable, and, therefore, stable international monetary system. Through its UN World Central Bank, an anathema for libertarians, governments are able to provide liquidity by issuing extra allocations of Tierras based upon a per capita system rather than the quota system through which the IMF allocates its synthetic currency of Special Drawing Rights (SDRs). There is no equivalent international monetary institution for libertarian economists because they have rejected the IMF as an intrusive international institution that is not needed in a gold standard. They do not have a lender of last resort that is able to circulate credit into a global economic system where millions of people are unemployed, where sovereign debt burdens are severe, where currencies sometimes fluctuate by 50% in a decade’s time and where hundreds of billions of dollars (Tierras) are needed to finance low carbon and climate-resilient development.