An essay by Julian Cribb FRSA ATSE
In an age of existential emergency, when the future of human civilization depends on how successfully we manage to overcome the ten global threats which now bearing down on us all, it is important for humanity to share a common currency for dealing with them. We need not only a common understanding of the issues, but also a common means of exchange which enables us to rebuild and regenerate our damaged world.
The reasoning is straightforward: money is a figment of the human imagination. It exists only in the human mind, not the real world. Yet it is used to develop, produce, exploit, damage and destroy things that are real.
Being imaginary, money is also infinite in supply, in that banks and central banks can, as a rule, create as much of it as they choose, mostly out of thin air. Most of the money in circulation today is digital (+92%). It consists of electrons in computer systems of banks and trading houses and has no physical existence.
However, the Planet on which we live is physical and finite. Its oceans, atmosphere, landmass, forests, soils, fresh water, minerals and living organisms are all limited in extent and in terms of what they can yield for the survival of humans and other life on Earth. Science has long understood this.
If you use an infinite commodity, money, to exploit a finite Planet, you will run out of planet long before you run out of money.
That is the greatest flaw in the present global monetary system. It looks only to the present need for wealth and makes no investment in the long-term need for human and biotic survival. In economic terms, it treats life itself as ‘an externality’.
In other words, through our monetary system, humanity currently prizes ‘wealth’ above its own survival. This is a worry.
It needs to be addressed with the utmost urgency.
To do so necessitates the creation of a medium of exchange which is based upon things which exist in the actual world – not on things conjured from nowhere by banks and central bankers, or the speculations of money market traders and brokers.
The world of the C21st needs a real currency with a trustworthy, reliable value, which people can use in their daily lives and businesses and which reflects the real Planet and its many real assets which underpin the value of this currency.
A currency which encourages humans to change their behaviour in favour of sustainable, regenerative activity, in place of exploitative, destructive activity. This is the proposed Earth Standard Currency (ESC) – the Earth Dollar or Gaia for short.
Why do we need an ESC?
The basic argument for why we need an ESC is outlined above. Money is infinite in a finite world and this is leading to the wholesale destruction and/or overexploitation of the systems needed to maintain life on our Planet – forests, fish stocks, arable soils, fresh water, the climate and atmosphere, the oceans, wildlife, planetary and human health etc.
The volume of present currencies in circulation is determined by trading banks, central banks and governments, not by anything real. It is set according to their judgement of ‘what the market will bear’. Previously, when the volume of money or the price of stocks or commodities exceeded this credibility limit, hyperinflation or a ‘crash’ usually ensued.
Past cases where excessive speculation drove the theoretical value of commodities or stocks too high, resulting in a collapse of public confidence, include the Tulip Crash (1634), the South Sea Bubble (1711), Austrian and Weimar Republic hyperinflation (1920s), the Wall Street Crash and Great Depression (1929), the Wool Boom (1950s), the Asian Crash (1997), the Dotcom Boom (2000) and the Global Financial Crisis (2008).
The latter, most people will remember, was caused by money plucked by banks out of thin air, then lent to unreliable (‘sub-prime’) borrowers. When the failure of these bad loans became inevitable, they were then bundled and on-sold as ‘derivatives’ to people who did not understand what they were buying. When confidence in these derivatives collapsed, the world financial system fell into chaos and several major banks failed. The situation was eventually stabilised by central banks plucking a further $3.5 trillion out of thin air to pay for the bad debt created by the banks’ bad loans. Thus, imaginary money was used by central banks to pay off the imaginary debt created by banks, lenders and speculators out of nothing in the first place. This pecuniary prestidigitation was dressed up in the fancy term, ‘quantitative easing’. In other words, a speculative oversupply of money had led to a public loss of confidence in its value. It follows, from this experience that it is desirable for money to have a value that is based in the real world, which is not the plaything of gamblers and speculators, and which cannot be created at whim by irresponsible lenders.
An Earth Standard Currency, the value of which is based on the actual assets, physical and ecological, for sustaining life on Earth would meet such a need.
Is there a precedent? There is no precent for a currency whose value is based on the real value of the entire Planet. However, there are useful examples.
Gold has been used to underpin rates of exchange for over 2700 years. Prior to the 1930s, governments based the value of their currencies – such as Sterling and the US dollar – on the ‘gold standard’. This was based on a fixed value for gold, set by government, and involved the holding of large, unwieldy gold stocks like those in the vaults of the Bank of England or Fort Knox. This meant countries could settle their debts by large physical gold transfers between them.
In the ‘30s gold was replaced with ‘fiat money’ in which the value of the currency was allowed to float at will against other currencies, underpinned by a guarantee from the Government. This system prevails today. Its chief shortcoming is that it allows the creation of ‘imaginary money’ and enables speculation by money marketeers.
However, money is so useful a concept for exchanging goods, ideas and services that we cannot do without it, at least for the time being. It works best when its value is reliable and trustworthy.
The alternative is to create a universal currency whose value depends on the combined value of the systems and physical resources used to support life. This is the Earth Standard Currency. While these assets change over time, they do not do so with the volatility of present currencies. Hence an ESC is far more stable and secure.
A second precedent is the European Euro, which is the official currency in 19 of Europe’s 28 member states and the world’s second largest reserve currency after the US dollar. Introduced in 1992 it is now consistently worth more than the US$ and its volume in circulation exceeds the US$. The value of the Euro is set by the European Central Bank based on a fixed conversion rate for each national currency of member countries. However, its flaw is that these currencies are subject to the same volatility as the US$ and so are vulnerable to overproduction or economic mismanagement.
The successful introduction of the Euro demonstrates it is possible to create a new currency which serves more than a single country and, in a globalised world, it represents a broad model for introducing an Earth Standard Currency.
Undoubtedly an ESC would succeed for the same reasons as the Euro, by providing greater stability and certainty for users and investors in a world where most individual currencies are set by lenders and speculators as well as by the financial management, good or bad, of participating countries. Since the governments of most countries are either self-appointed or else the product of corrupt political processes, it follows that the present value of the world’s currencies lies in the hands of the power-hungry and greedy and has little relationship to the needs of either people or the Planet.
How would an ESC work?
The Earth Standard Currency is, in essence, an index compiled by scientific measurement of all the main ecological systems and physical resources that sustain life on earth, including human life.
This index would involve an algorithm compounded from relevant objective measurements of these Planetary assets such as volume of fresh water available, state of the atmosphere for a stable climate, extent of forest cover, rate of global soil loss, extend of pollution and poisoning of the biosphere, number and volume of living species and so on. These measurements will constitute a realistic appraisal of the ability of the Earth to sustain life – and whether that ability is improving or deteriorating.
In other words an ESC is an ‘index of indices’, balanced against one another to reflect the realistic state of the Earth’s resources and life support systems.
Achieving such a balance is no trivial undertaking, scientifically, but there are numerous examples of concepts which can aid in its development. These include: – The Global Footprint Network, mentioned above – The Global Boundaries concept propounded by Rockstrom, Steffen et al – The Global Prosperity Indices developed by numerous scholars as a better way than GDP to measure national wellbeing – The Gross National Happiness Index of Bhutan, which comprises sub-indices of living standards, education, health, environment, community vitality, time-use, psychological well-being and good governance.
Key points favouring an ESC are: 1. It is based on real, tangible assets of Earth systems monitored and recorded by science. It is thus not subject to speculation, selfish manipulation or mismanagement by governments, banks or money traders. 2. Its value will fall over time, as Earth systems deteriorate, and rise again as they improve or are regenerated by human action. This means the value of your home or paypacket will rise and fall along with the value of the ESC, providing a modest but real incentive for all users to work harder to improve the viability of Planet Earth. 3. This will foster the development of the circular economy and the ‘ideas economy’ (based on non-material goods and services) thus providing for economic growth without ecological penalty. 4. People and investors will trust it, and adopt it readily, because it is independent from the machinations and self-interest of national governments and traders. 5. It provides a global currency for a global world.
How would an ESC be denominated?
As the term ‘Earth Standard Currency’ may be confusing to the average person, it is desirable that the currency have a name that everyone can easily use and relate to. The currency could, for example, be known as the Earth Dollar, reflecting the popularity of the US dollar as a trading currency the world over. However, this may meet with objections from major players in the world economy, such as China, India, Russia and Brazil.
The name likely to appeal to the most people, and so encourage its adoption, will be short, memorable and reflective of the function of the ESC.
The name Gaia is proposed, based on the Ancient Greek word for our home Planet. ‘A gaia’ would thus be a single unit of an Earth Standard Currency.
An ESC will need a central authority to manage and administer it and oversee the scientific integrity of its indices. It is proposed that this body be created as a special institution under the United Nations, combined with the World Bank and International Monetary Fund.
Are there objections?
There will be numerous objections to the creation of an ESC, chiefly from the economics profession and from the sectors who imagine they have most to lose from the stabilizing of world currency around a scientific, rather than a market, metric. Some individual countries may feel threatened by a Earthwide currency because it reduces their ability to manipulate the world economy.
These will have to be overcome, but the Euro is evidence that a more stable currency with a known and predictable value will appeal strongly to most people. It will also make trade and ‘exchange rate risk’ far less of a gamble for international buyers and sellers of goods, ideas and services.
Author Kenneth Boulding once said “Anyone who believes that exponential growth can go on forever in a finite world is either a madman or an economist” – yet the economics profession as a whole has yet to address this basic truth. An ESC offers economists a chance to participate in and lead in the creation of a real currency that will restore the planet’s resources for life instead of consuming, wasting and destroying them. It is economists, working with scientists, who can help design workable indices and the correct balance between them to create a universal currency.
An ESC can both help to stabilise human use of Earth’s resources and at the same time contribute to economic growth, by encouraging the development of the ‘ideas economy’ in which wealth is based on non-material goods and services such as software, the arts, sport, entertainment, science, human services etc. The ‘ideas economy’ provides jobs, growth and profit but does not draw down the Earth’s finite resources in the same way as an economy based on steel, cement, oil, coal, agriculture, forestry, fishing, wasted water etc.
Market traders need not fear an ESC as they can continue to trade in the many other national currencies or stocks which will remain. However, they will have no power to influence the value of an ESC for selfish purposes.
There is at present a fierce debate in academia and public about whether ‘capitalism’ is to blame for the destruction of the planet and should be discontinued in favour of some other socioeconomic system. It is doubtful that either side in this debate will ever win the argument, as the last 200 years have settled nothing politically. The creation of an ESC sidesteps the argument completely, offering a stable global medium of exchange which encourages the regeneration of the Earth along with continued economic growth.
Furthermore, being independent of the selfish influence of national governments, transactions denominated in an ESC can be levied by a small amount (eg 0.1%) to help fund projects of global urgency and significance, such as the Sustainable Development Goals (SDGs) , global reforestation, revegetation and rewilding (eg by the REDD scheme ), ocean cleanup, carbon farming and water recycling. This would create a fund for projects to restore and regenerate the Earth.
Conclusion and recommendation:
The United Nations, academia, national governments and central banks should consider as a matter of urgency the scope for introducing a universal Earth Standard Currency on the principles outlined above.
– Julian Cribb, Canberra, April 2019
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