Financing the future

New currency concepts might usher in an age when international debt is eradicated, and global equality and trade commonplace. Giles Crosse imagines a more equitable finance.

Finance has the power to shape our future planet, its problems, successes, poverty, wealth, happiness or misery for billions of human beings. We know today’s systems are at best functional, at worst criminal, but finding new ways won’t be easy.

Many think tanks are pondering the difficulties. These include the new economics foundation, Global Financial Integrity or Share the World’s Resources. And this doesn’t begin to cover massive players like the World Bank or International Monetary Fund.

So might a global currency ever be achievable? Might it link worldwide economies into a single currency of transaction, enabling more sensitive and logical lending, or perhaps controlling inflation or unequitable pricing for food or housing at a global level? The complexities of such work are mind boggling.

“On the subject of a global currency, this isn’t something we’d promote,” suggests Andy Wimbush, Communications Officer nef (the new economics foundation).

“Mainly because we think that in order to tackle climate change we need to go through a process of relocalisation. That means community currencies, time banks, local exchange and bartering schemes. So we’d be in favour of many more currencies, not fewer.”

Nef’s paper ‘The Great Transition’ makes this logic clearer: ‘The financial crisis revealed in very stark terms the limits of globalisation. Huge, multinational investment banks, with turnovers many times larger than most of the world’s nation states, imploded, threatening the stability of the entire global economic system and eventually having to be propped up by governments at massive cost to taxpayers.’

‘The globalisation of finance is just one example of the problem of scale in modern economies and modern economic theory. The emergence of clearly visible environmental limits, the instability, inequity, alienation and frequent resource inefficiency of global markets and the more subtle erosion of the community and social networks that large and unaccountable corporate bodies create, have all conspired to bring the problem of appropriate economic size into sharp focus.’

Nef’s argument is based around subsidiarity: ‘Everything is best decided and implemented closest to the people who will be affected.’ Clearly a global bank or currency, argued over and implemented thousands of miles away from the people it serves won’t achieve this. Keeping things local is the logic.

Money matters

To an extent it’s true. If housing prices weren’t guided by international investment banks delivering massive profit to a tiny minority of the world’s population, but by the charges of local craftsmen, many more people might buy a place to live. Were localised trade within starving African nations encouraged, rather than growing food for Western consumption, mass suffering might be avoided.

Of course, there are myriad complex elements, including war, politics and greed which influence these facts, so such a simple analysis is hard to make. But, ‘Economic activity should be conducted at a scale and over an area that maximises social, environmental and economic benefits and minimises costs.’ continues the nef paper.

‘Just as there are economic benefits to producing some things on a large scale, there are major environmental, economic and social benefits from doing many others things on a more human, local scale. The financial crisis has demonstrated that greater size creates greater vulnerability to economic shocks.’

‘Our current approach to economics ignores this balancing act and offers a poor guide to appropriate scale, leading naturally towards ‘gigantism’ as a solution to every problem.’

Another problem is global trade can force a race to the cheapest production prices. ‘If capital can move freely between nations, it would have no reason to be satisfied with a mere comparative advantage at home, but would seek what Herman Daly has described as ‘absolute advantage’, the absolutely lowest cost of production anywhere in the world.’

And while this reduces cash prices, it reduces many other things too: ‘As well as the environmental consequences, the social impacts are profound as individuals, communities and even countries become increasingly atomised and specialised cogs grinding in the wheels of volatile global supply chains.’

Global gains?

 “Current proposals on the table revolve around the idea of a global reserve currency rather than a global currency per se, this would most likely involve the IMF and a form of its special drawing rights.” suggests Robin Willoughby, Policy Officer, Share The World's Resources (STWR).

“There are several obstacles that I can think of in terms of creating a global currency of its own right. Firstly, there would be a strong pushback from the United States, which benefits enormously from the US Dollar representing the global exchange currency of choice.”

“Secondly, many countries would be fearful of losing economic and financial autonomy. As such, these arguments recount the same issues that underpinned the debate on the introduction of the Euro.”

“Thirdly, the countries in the Euro zone already had a high level of integration; economically, politically and institutionally. Governance mechanisms such as the European Union and the European Central Bank allowed the creation and operation of the Euro. Currently, there is nothing comparable on the international level that would allow the effective rollout and operation of a global currency.”

Whether the Euro itself represents an indicator of the way forward depends greatly on your viewpoint. EU offers of 7.2 billion Euros to developing countries during Copenhagen to enable adaption to global warming challenges were dismissed as inadequate by many developing countries. 

Yet at least the existence of the currency enabled such a decision to be reached at all. And global currency is intrinsically linked to so many other global issues, few of which as yet have any clear solutions.

“Many see the crisis as an opportunity for renewed regulation and democratic

restructuring of the global economy,” explains a Global Policy Forum document. “But solutions are complicated by the depth of the crisis, by the lack of strong global institutions, and by overlapping crises in the environment, natural resources and global trade.”

Just some of these issues include instability of US trade imbalances and what that may mean for the global economy, how, where and when climate change will impact, and diminishing fossil fuel resources, that historically catalysed growth in global economies and production, but at the same time sparked global warming.

The Green New Deal

The Green New Deal Group comprises international commentators, seeking ‘joined up policies to solve the triple crunch of the credit crisis, climate change and high oil prices.’

The Group suggests altering the international financial system, and using intervention by Nation States to drive expenditure towards environmental projects to cut fossil fuel use. It also argues for debt cancellation.

‘It is our view that societies might have to introduce a global ‘jubilee’ of debt cancellation, an extraordinary amnesty for debtors. The first purpose of such an amnesty would be to release millions of people, business enterprises and governments from the grip of parasitical creditors, draining them of every last asset.’

“The second purpose would be to restore debtors to viability, enabling them once again to become productive and economically active. The third purpose would be to restore order and stability to the balance sheets of the finance sector, whose livelihoods would not be immune to the effects of a severe and prolonged debt crisis.’

‘Without such a global jubilee, high income Anglo American economies could be mired in prolonged economic degradation caused by debt deflation for decades ahead, just as low income countries have been mired in debts since 1982, and Japan in a deflationary environment since 1990.

‘A prolonged crisis in rich countries will impact more severely on people in low income countries. A global jubilee will release rich and poor countries alike from debt bondage.’

The complexities behind global economics make it so hard to judge which, if any of these measures might reap rewards. What is obvious is that the problems are clear and present, and it’s unlikely global finances can deal with issues affecting our future planet without some overhaul.

Just how this will be achieved remains a mystery.

Green New Deal: initial proposals for financial renewal involve:

• The reduction of the Bank of England’s interest rate to a low level.
• Very much tighter controls on lending and on the generation of credit.
• The forced demerger of large banking and finance groups. We want to see retail banking split from both corporate finance (merchant banking) 
and from securities dealing. This would echo the Glass-Steagall legislation of inter-war America, which separated retail and investment banking but was repealed in the 1990s.
• Breaking these demerged financial entities up into smaller banks, on the principle that mega banks make mega mistakes that affect us all.    Instead of institutions that are ‘too big to fail’, we should aim for institutions that are small enough to fail without creating problems for depositors and the wider public.
• Subjecting all derivative products and other exotic instruments to official inspection. Only those approved would be permitted to be traded.  Anyone trying to circumvent the rules by going offshore or on to the internet would face the ‘negative enforcement’ – their contracts would be unenforceable in law.
• Offering the same protection for our remaining top class industrial companies as is routine in France or the United States – and perhaps go further.

What are your views?  Not sure? Read the resources below for more information. Add your comment below. We welcome your thoughts and proposals. Not a Planetary Citizen? Sign up  to Our Future Planet and start redesigning your future now!

Resources:
Nef: A Bit Rich: Calculating the real value to society of different professions
Nef: The Ecology of Finance: An alternative white paper on banking and financial sector reform November 2009
Nef: The Great Transition
The first report of A Green New Deal: Joined-up policies to solve the triple crunch of the credit crisis, climate change and high oil prices
The second report of A Green New Deal: Why spending on a Green New Deal will reduce the public debt, cut carbon emissions, increase energy security and reduce fuel poverty
United Nations Economic and Social Council: Analytical Background study (Mutual accountability and aid transparency)
United Nations Economic and Social Council: Support to UN Development Cooperation Forum 2010

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