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No Turning the Corner, unless....

Post By gaia1 in TFD system


Monday, April 16, 2012

“Out of the sighs of one generation are kneaded the hopes of the next.”Joaquim Maria Machado de Assis, Brazilian novelist, poet, and playwright (1839 – 1908)

There is a dense fog of economic and ecological gloom hanging over the globe. This is not a fog shown on a satellite picture, but a human-made fog. It is a fog of dysfunctional monetary, financial, economic and commercial systems that keep the world constrained from reaching decent quality of life for its 7 billion human beings and its trillions of other living beings. This economic fog will even get denser because of the ever increasing ecological fog of global warming, measuring in parts of million of CO2e in the atmosphere, and its ever increasing social consequences of social disruption. Can this fog be lifted or at least its density reduced?

IMF’s Christine Lagarde noted in her address to the Associated Press on April 12 that given the economic situation in Europe and in the USA “markets remain volatile and that turning the corner is never easy.”  One thing is clear to her: “... integration poses great risks, but it also promises great rewards. Heightened global cooperation is the key. History has shown us that when nations face common challenges in a spirit of solidarity, everybody wins. When nations pull apart in acrimony, going their own way and seeking their own advantage, everybody loses.” How can nations cooperate in lifting the fog of economic and ecological gloom (and doom in no proper action is taken) and turn the corner for functional monetary, financial, economic and commercial systems to emerge?


First of all, such emergence is made possible by achieving an ever better understanding of the dynamic interplay between these global systems and the systems of inequality. Thus, Galbraith in his new book “Inequality and Instability” argues that finance is the driveshaft that links inequality to economic instability. Like its closely related reality of the equity they both very much determine how well these global systems will work.


Second of all, these functional systems will emerge when the crucial role of the international monetary system as glue of these systems is recognized. While monetary historian Barry Eichengreen emphasizes the glue metaphor, other metaphors such as lubricant and linchpin are equally useful in emphasizing the basic role of the international monetary system. Reforming and especially transforming the global monetary system means reforming or transforming the other systems. A proposal for a transformed international monetary system will be presented below.


Thirdly, a guiding principle for a global governance framework is needed that would be able to make the social, economic and ecological dimensions of sustaining futures a reality. This pursuit is one of the main challenges of the upcoming Rio June 2012 Earth Summit.


Fourthly, in order to facilitate the above three requirements nations and their private sectors and civil societies are to work far harder in discussing and developing a new set of integrated social and ecological values, the kind of common value base that is part of the Earth Charter which was launched in 2000 after five years of intensive, worldwide consultation of thousands of groups.


Based upon a similar framework as the Earth Charter’s the Verhagen publication of The Tierra Solution: Resolving the Climate Crisis through Monetary Transformation proposes a pathway that would satisfy those other three requirements and could turn the corner once and for all if being pursued and implemented. It is based upon the carbon monetary standard of a specific tonnage of CO2e per person. Its unit of account of the Tierra would be indicate the quantity of the fixed exchange rates which would make them convertible until the time nations decide to adopt the Tierra as a global currency. Nations that decarbonize the most will have the strongest economies and, consequently, the strongest currencies. Nations would settle their financial and ecological (climate) debts and credits via a modified balance of payments mechanism where a sizable amount of financial credits of nations in the global North can be bilaterally settled with the ecological credits of nations in the global South. Most importantly, this carbon-based monetary architecture is governed by the Tierra Global Central Bank which, unlike the IMF, would be an integral part of the United Nations and which, unlike the Fund, would be a real bank. It would the sole creator of money because the present privately-owned banking systems would be based upon 100% reserve requirements, i.e. they would not create money, but function as utilities.


Gone are the days when the financial systems were based upon debt rather than money or credit. Gone are the days when austerity was needed to balance budgets and reduce debts. Days have come when financing will be ample for the billions of valuable programs that are needed for equitable and sustainable futures for all.


No turning the corner in this present fog of economic, ecological and social gloom and doom is possible, unless….nations start to cooperate in devising new monetary, financial, economic and commercial systems based upon a transformed international monetary system to combat the climate crisis and advance low carbon and climate-resilient development in the global North and South.


“If you have built castles in the air, your work need not be lost; that is where they should be. Now put the foundations under them.”  Henry David Thoreau, 19th century American transcendentalist.