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Jun
15

Tierra Land 2025

Post By gaia1 in TFD system

The following scenario is placed at the beginning of the 2010 COSIMO book entitled The Tierra Fee & Dividend System: A Monetary Approach to Low Carbon and Climate-resilient Development by Frans C. Verhagen, M.Div., M.I.A., Ph.D., sustainability sociologist. He is the founding president of International Institute of Monetary Transformation. www.timun.net; gaia1@rcn.com

C IIMT, June 2010

 
Tierra Land 2025

 

It is the year 2025. So much has changed since 2010, affecting in a very fundamental manner the lives of individuals, families, businesses and the States and the institutions that govern them both on a national and global level. Indeed, it was well-nigh impossible to have predicted these changes around 2010, let alone at the beginning of the new century ten years earlier.

 

To help you understand what happened, you are invited to take a trip into the future—to Tierra Land to look at/learn about some of those changes—brought about by the introduction of a carbon-based monetary standard and its unit of account, the Tierra, thus transforming the international monetary system of 2010..

 

Our energy system is no longer carbon-based. Coal and oil companies now operate a low carbon system and are leading in the promotion of the many renewable energy technologies that we now have. Wind turbines dot our landscape and offshore installations have replaced those hundreds of oil rigs. We read in our textbooks how the 2010 BP oil disaster in the Gulf of Mexico and the many years long cleanup was a major precipitant for energy change in the USA and other parts of the world. The oceans are now used for converting wave action and ocean thermal differences into energy. Almost every building produces a part of its own electricity. We in the industrialized countries are proud to have developed a decentralized solar energy system that is far more secure than the highly centralized power stations of the past.

 

One of the reasons for this efficient and secure decentralized energy system is the role that national governments have played. In the face of the economic and climate crises of 2007 – 2009 and the ongoing food, fuel and water crises they realized how necessary it was to cooperate in transforming the monetary, financial and economic systems. The pressure of emerging economies, which wanted a more equitable world order, also contributed to this change from a competitive multipolarity to a cooperative multilaterism.

 

As a result, the world’s financial system is no longer controlled by the Bank of International

Settlements and its Financial Stability Forum, the International Monetary Fund and the World Trade Organization. Nor is it influenced by large financial services corporation. These corporations, many of which had signed on to the World Corporate Charter Organization established a few years after the Rio Summit, are now monitored and regulated by the UN World Central Bank. It is encouraging to observe that under the financial system in Tierra Land 80% of all financial resources are invested in the real economy of goods and services. Fifteen years ago only 20% of those resources were invested in the real economy and 80% was “invested” in the shadow economy.

 

Commercial banks and privately owned banking systems no longer have the privilege of fractional reserve banking. Governments have withdrawn this privilege. Nor is the economy debt-based with governments borrowing money from privately-owned banking systems. Now banks make careful loans to prospective homeowners and enterprising business women.and men. When an individual makes a loan from a bank, he/she pays a very low interest.

 

The international monetary system in 2025, i.e. the Tierra Fee and Dividend (TFD) system, is no longer without a monetary standard which is carbon based using the Tierra as its unit of account. It  aims to address itself to the century’s greatest challenge—reducing GHG emissions to non dangerous levels.  With its fixed exchange rates, the TFD system has reduced currency manipulation and speculation drastically. Anchored in the Tierra, the TFD’s unit of account, the nations’ currencies are convertible thus removing the need for a costly global reserve system. We are now looking forward to instituting a single carbon-based world currency using the Tierra as the unit of account, making it, at the same time, a nation’s or individual’s store of value and means of exchange. The method of computing a nation’s balance of payments have also changed. The account lines will include both its financial and ecological credits and debits

 

But how did these changes come about? Looking back to 2010 we envision the steps the world community needed to have followed to propel these changes forward.

 

One might have expected that the crisis years 2008-9 to bring forth new thinking and institutions. They did not. Rather, the economic crisis resulted in a near collapse of not only the global financial system, but also the global economic system. Besides, human survival was threatened by the climate crisis. The Copenhagen conference of 2009 and its successor in Cancun the following year only minimally dealt with the perils of global warming. However, the two working groups in the UN Framework Convention on Climate Change (UNFCCC) continued working on the Bali Plan of Action including the weak and undemocratic Copenhagen Accord into their discussions. They also looked at various ways of improving long-term cooperative action among the nations. Progress was made when the climate crisis gained the top spot on the agenda of the 2012 UN Earth Summit in Brazil, the 20th anniversary of the 1992 UN Earth Summit held in Rio de Janeiro. 

 

During the years 2010 – 2015 new global policies were developed. People started to understand the serious drawbacks of the financialization process that had taken place around the 1990s and wanted to definancialize their societies. They remembered that the hegemonic empires of Spain, Holland and Britain lost their power when their societies were financialized at the cost of manufacturing and agriculture. The financialization of the US society was considered to be one of the main causes of the Great Recession of 2007-9. Following the Recession legislation was passed to curtail the excesses of the financial sector and decrease its overbearing nature on the economy as a whole. Thus, greater space became available in national economies to engage in manufacturing and agriculture. The restoration of ecologically benign farming and high tech manufacturing by the US had a beneficial impact world wide. We are the present beneficiaries of this restoration, which also took place in other industrialized countries. This definancialization process also created greater financial policy space in developing nations because of the unfettering of their financial ties with large expatriate corporations in finance, insurance and real estate (FIRE).

 

People also started to understand the larger scope of the definancialization process  by connecting it to deglobalization process and started emphasizing the benefits of living well within the Earth’s limits in their own bioregions.

 

The link between definancialization and deglobalization became clearer to most people in government, business and civil society. Individuals, local communities and their national governments started emphasizing the benefits of living well within the Earth’s limits in their own bioregions. People were encouraged to become ‘locavores’ eating food grown in their region. The concept of frugal trade which included the environmental costs of the aviation and shipping industries in providing goods and services was introduced and guided business practice. .

 

Some of this thinking passed into the international community’s effort to implement the Millennium Development Goals (MDG), particularly in 2010, when high level sessions took place in March and September in a last ditch effort to ensure basic human services promised by the MDGs to all by 2015. It took about ten years to have this new thinking and its related policies implemented both globally, regionally, nationally. We have to thank those valiant persons and institutions who did not give up during the last 15 years but rather kept battling a world order that enriched the few, impoverished the many and imperiled species and planet

 

At the same time, the idea of a carbon-based monetary standard (CBMS) was introduced to deal with the serious shortcomings of the existing international monetary system. Fluctuating exchange rates, currency manipulation and speculation and an expensive global reserve system that costs developing countries some $100 billion annually had to be brought under control. It was finally recognized that the international monetary system, the glue which binds the monetary, financial, economic and commercial systems, had to change if those other systems were to function properly. In other words, the economy, trade and financial institutions had to be based on an equitable, sustainable, and, therefore, stable monetary system if they were to provide resources for low carbon and climate-resilient development in both the global North and South.

 

A carbon standard was, therefore, proposed to be the new monetary standard. It was developed to put the international monetary system into the service of combating the climate crisis. Its accounting unit was the Tierra, Spanish for Earth. By basing the new international monetary standard on carbon rather than upon a basket of major currencies, commodities or an adapted SDR as the reformist authors in the important Chatham House report were proposing, the international monetary system was transformed leading to changes in the financial, economic and commercial systems, which now had to operate within the limits set by the carbon monetary standard internationally, regionally and nationally.   All nations had to express their national currencies in terms of the Tierra, the unit of account of the new monetary system. Pegged or anchored on the Tierra, their currencies became carbon-based and thus convertible with each other.

 

The way history develops is a wondrous thing. Serendipity and planning often go together, and then the truth of the saying “opportunity favors the prepared mind” becomes clear. One of the outcomes of the minimally effective Copenhagen conference of 2009 was the emphasis on climate justice by a substantial number of members of Civil Society. They stressed the ecological indebtedness of the countries in the global North. It was the emissions of their greenhouse gases over the last 200 years that had brought on the climate crisis.   The president of Bolivia, Evo Morales, gave leadership to organizing peoples from around the world to redress ecological indebtedness. The recommendations of his conference, held in Cochabamba from 19-22 April 2010, with its many internet working groups were submitted to various venues at the UN in early May of the same year and submitted to the UNFCCC in Cancun in November 2010. Several member states, particularly from South America, took leadership in having the UN General Assembly pass a resolution to establish a UN Commission of Experts on Monetary Transformation and Low Carbon, Climate-Resilient Development in fall 2010. It was mandated to present its recommendations, including a Monetary Plan of Climate Action to the UNFCCC either in Cancun or South Africa, with its recommendation and Monetary Plan for Climate Action, to the Second Rio Earth Summit in 2012. This summit initiated thousands of meetings and consultations in all continents and by all kinds of groups of government, business and civil society which continued for three years and led to the Tierra Treaty of 2015. Initially it was thought that the process would take longer and that the Treaty could only be signed around 2020, but Mother Nature spoke up in her own way. Such catastrophic droughts and floods took place between 2010-15 that her human inhabitants were pushed as a matter of high urgency to expedite the Tierra Treaty.

 

 It is also worth mentioning that the second Obama Administration finally developed a global monetary vision based upon its New Foundation philosophy that enabled the USA to assume global monetary leadership within the framework of the United Nations together with China and other emerging economies.  That vision also prevailed on the US Senate, the historic graveyard of international treaties, to accept co-leadership in forging the Treaty forward after its Treasury Department had gradually moved away from having the US dollar remain an international reserve currency. It had already noted this trend of nations moving away from the US dollar in its 2010 National Intelligence Council Project, entitled “Global Trends 2025: A Transformed World”.

 

This imaginary trip is offered as a prelude and introduction  to a proposal for a monetary approach to a low carbon and climate resilient development, i.e. the Tierra Fee and Dividend System (TFD), the various dimensions of which will be elaborated in the chapters that follow.

 

“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.”

William D. Ruckleshaus,

Head of the U.S. Environmental Protection Agency 1970-73.

 

 

Jun
14

Comparing the classical gold standard and the carbon standard

Post By gaia1 in IIMT

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 relative 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 (Pound sterling in the 19th century and US dollar in the 20th century). The carbon standard is defined in a precise targeted tonnage amount of CO2e  emissions per person expressed in the precise amount of value in the Tierra, the TFD’s unit of account. There are two ways that a carbon-based monetary standard is applied: national currencies become carbon-based or a carbon-based world currency is created. In both cases nations can trade with convertible national currencies or the single carbon-based global currency. In the latter case, the Tierra is not only a unit of account, but also an international means of exchange. It has become a vehicle currency, that can be banked and receive interest. As such it has become a store of value, the third major characteristic of money in modern societies.

 

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. During the gold/dollar standard the U.S. government balances were settled in dollars which were convertible to gold at $35 per ounce. The balance of payments during the carbon standard would be accomplished when carbon-debtor nations transfer their carbon-based national currencies or their world currency of Tierras to carbon-creditor nations to balance their carbon and financial accounts.

 

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 instability, unpredictability, inequity and unsustainability.

 

Why should the carbon-based monetary standard be preferred over the gold standard? There are four main reasons: a monetary, a philosophical, an ecological and a fiscal reason.

 

The classical gold standard suffered from the following monetary shortcomings. It did not possess the capacity to create credit for a growing international economy. During the gold/period of 1945-71 credit flowed into the international economy through the use of the convertible US dollar which, by the way, gained interest unlike the sterile gold in central banks’ vaults. The drawback of the latter system’s credit infusion became clear in 1958 when the BW system under the IFM was most successfully implemented. The U.S. government was developing a huge balance of payments because its own currency was also the main world’s reserve currency (Cf. Volcker’s 1992 Changing Fortunes, p.20)

 

The classical gold standard had also the built-in rigidity of very narrow bands of its fixed exchange rates. The difficulty of adjusting exchange rates is a perennial problem from Florentine bankers, the British supported classical gold standard in the 19th century, to the U.S. government supported gold/dollar standard. It always a great systemic challenge to adjust fixed exchange rates to the changes in a nation’s economy that causes its balance of payments to go grossly in the surplus or deficit direction. Letting the exchange rates float or having “managed” floating exchange rates that China adheres to are monetary strategies that are wrought with problems, particularly systemically.

 

“Barbaric relic” is the epithet that John Maynard Keynes gave to the gold standard. Its limited availability even with new discoveries is unable to meet the demand of an expanding global economy.

 

The Tierra monetary architectures would not suffer from these three monetary shortcomings of the classical gold standard. Its UN World Central Bank has the global authority to create credit in amounts that it sees fit in the face of debt-laded nations that are trying to cope with both the economic and climate crises. Setting bands around its fixed exchange rates is part of its functions as the global institution of monetary governance. Like always, the Bank would be faced with the challenge to adjust a nation’s carbon-based currency by setting its par value with the Tierra, thus either devaluing or revaluing its currency. Obviously, CO2e is an ample standard because much reduction of CO2e has to take place before the standard has to be changed to another standard that is intrinsically valuable at the end of the 21st or the beginning of the 22nd century.

 

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 of price levels robbing them of the value of their assets. These monetarists would set a percentage of growth in the money supply and the system of efficient markets would automatically adjust to this monetary straightjacket.

 

The role of government under the TFD system, adhered to by economists with the 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 a 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 being 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—the TFD’s 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 the value of which is expressed in the amount of Tierras their currencies can command.

 

In conclusion, 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.

 

The following chart presents a comparison of the classical gold standard  with the carbon standard, summarizing most of the above  information. Note that the balance of payments schedule in the classical gold standard was seemingly a rather rigid adjustment mechanism to balance financial accounts between nations. The balance of payments in the TFD system is less rigid because there is an international monetary institution the Board of Governors of which has a global authority to make the balance of payments work in a flexible way. However, its adjustment mechanism of balancing the carbon accounts of nations can only flexibly become in operation after a convergence period that would narrow the wide gap between carbon debtors in the global North and the carbon creditors in the global South. Both the flexibility and convergence issues are  part of the negotiations that precede the signing of the Tierra Treaty.

 

 

 

 

 

COMPARING THE CLASSICAL GOLD AND THE CARBON STANDARD

Features                       gold standard                            carbon standard

Usage                           mostly in 19th century                being proposed for 21st century

Present proponents       mostly libertarian                       mostly Keynesian

Standard                      precise gold price                     precise CO2e per person target

Exchange rates             fixed with rigid bands                fixed with managed bands

Currency                      national gold-based                   national carbon currencies

Unit of account an ounce of gold                       Tierra based upon standard

World currency            no proposals                             Tierra carbon-based world currency

Balance of payments     rigid automatic adjustment         auto adjt after convergence period

BOP accounts              financial                                    financial and ecological/carbon

Governance                  Britain and USA                       UN World Central Bank

Provision of liquidity      none/SDRs under IMF as needed for best system operation

Relevance for 21st Cty too many shortcomings  directed to serve the climate crisis

C- International Institute of Monetary Transformation   

 

 

 

 

 

 

 

 

 

Jun
07

Regulating TNCs

Post By gaia1 in TFD system

Regulating TNCs

 

The Tellus Organization is launching a new program to regulate TNCs. It states in its draft proposal the need for their regulation. “Over the past half century, the reach and impact of TNCs have soared, with 75,000 firms now operating in all sectors of the world economy. The revenues of many companies exceed $100 billion per annum, with $300 billion no longer rare and $500 billion on the horizon. Of the largest economies in the world, approximately half are corporations rather than countries. The scale and influence of TNCs thus create a need to address the question of global governance. In the twenty-first century, the disjuncture between far-flung international impact and feeble international accountability has become a glaring incongruity that demands redress.” Thus, the draft proposal entitled When the World Rules Corporations: Pathway to a Global Charter    presents the following abstract for its June 2010 discussion.

The ascent of transnational corporations poses fundamental questions of accountability, regulation and democratic process. Although their footprints cross continents, TNCs still operate under legal licenses granted by national or state authority. In order to rectify the incongruence between global impacts and state control, and to align corporate behavior with social and ecological purpose, we propose a World Corporate Charter Organization. By defining the obligations of TNCs, global charters would balance the current emphasis of international institutions, such as the World Trade Organization, on TNC rights. With public concern about corporate power on the rise, the moment is propitious for establishing transnational governance of transnational corporations, a precondition for attaining just and sustainable societies.

 

My response was the following:

A valiant and necessary effort! Process is fine.

 

The WCCO is to become part of a global interconnected governance regimen of monetary, financial, economic and commercial systems. This is the challenge that the UNDESA World Economic Situation and Prospects Report of 2010 spells out in this way: “sustainable rebalancing of the global economy will require close coordination with other areas of global governance, including those related to development financing and the multilateral trading system, as well as with the United Nations Framework Convention on Climate Change. No specific mechanism for such coordination exists at present, and the creation of such a mechanism would need

to be considered.” (p.13)

 

Transforming the international monetary system being the  most basic international system that, like glue, binds together monetary, financial, economic and commercial systems entails substantial transformation of those dependent systems. Thus, WCCO which is to be part of global economic governance, would also be affected by this Great Monetary Transformation.

 

An international ad hoc planning group of UN officials, economists, and social scientists is working on a Declaration of Purpose to be presented to governments for them to sponsor a General Assembly Resolution to establish a UN Commission of Experts on Monetary Transformation and Low Carbon, Climate-resilient Development. A transformed international monetary system is based upon a carbon standard with its unit of account of the Tierra that forms the basis of carbon-based national currencies or, later on, the carbon-based world currency of the Tierra. It includes fixed exchange rates and debit and credit carbon accounts in the nations’ balance of payments. More information on www.timun.net.

 

Frans Verhagen, International Institute of Monetary Transformation