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Reforming money to rescue economies and the planet

By Shann Turnbull - posted Friday, 8 May 2020


Official money is too complicated. It tries to do too many things at once. Technology allows each traditional role to be separated. This allows the creation of a superior: (1) medium of exchange to provide a simpler and more efficient way to exchange goods and services as recognised by Keynes, (2) a unit of value and (3), store of value. Each role can now be undertaken by decentralised self-governing institutions to sustain infected regions without government deficits, debt, taxes or inflation.

Separating the diverse functions of money removes the conflicts that can arise between them. Access to money to provide a universal wellbeing income for citizens to consume goods and services is denied because money is also a store of value. Too much money creation debases the value of real assets held mostly by the rich, powerful and influential. They will push back on excess money created to counter economic ills from a pandemic or for any other reason. This makes the current financial system both untrustworthy and unequitable.

The professional intellectual conditioning of economic advisors limits their thinking to believe that only a centralised banking system can or should create money. To solve this strongly ingrained intellectual habit of thinking, standard units of value are required. This removes concerns about inflation. It would allow money to be created on a highly decentralised local basis to enrich community self-determination and democracy.

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No influential official currency in the world has its value tethered to any one or more real assets. Official currencies have become a social construct not defined by real goods or services. The value of all major currencies has become self-referential and so inherently unstable. A crisis in one major currency immediately affects the others. Leading economists recognise this self-referential feedback problem by describing it as a “Doom Loop”.

The International Accounting Standards Board (IASB) has not yet established any standards for economic value. This allows official money to become as ethereal, volatile and unreliable as crypto-currencies. According to a former World Bank Chief Economist it has also created the biggest market failure the world has ever seen. This is because markets have failed to recognise the climate change costs of burning carbon.

The band-aid answer to this problem is carbon trading and/or taxing. The more immediate and efficient answer is to establish a unit of value tethered to the sustainability of humans on our planet. The Internet of Things (IoT) allows this approach to be quickly introduced to reduce burning carbon and mitigate the plague of people on the planet.

A market solution to monetary problems requires the IASB to establish a standard unit of value for each bioregion of the planet according to its natural endowments to sustain humanity. Regions with higher endowments would obtain a higher value currency to mediate trade and migration between them.

An initial crude Sustainability Index (SI) could be created by the IASB dividing the total benign renewable energy consumed in each bioregion by its total energy consumption. When all consumed energy in a region became benign and renewable the SI would become 100%. The value of money in less sustainable regions would be less according to their natural endowments and controllable human variables.

The IoT allows all the data required to calculate a SI from even highly decentralised sources of energy production and consumption. To provide both a stable and predicable changing index a five-year rolling average could be used. Market incentives are then created for each bioregion to improve the value of its currency by managing its social variables that promote a circular economy. This is an economy dependent on only renewable and recyclable resources.

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Improving sustainability of each region also provides a basis to transition to a global circular economy. The SI could be modified to also recognise sustainability of biodiversity. Without this we might as well export humanity to barren extra-terrestrial locations.

A standard unit of value is like a tape measure. It allows anyone anywhere to identify economic value. This allows anyone anywhere in the world to create on a trustable basis a medium of exchange for goods and services in their bioregion. National governments and central banks need not be involved to promote local self-determination. Any regional government, town or trustworthy corporation could create its own medium of exchange for public use.

This could be achieved by trusted entities competing to issue self-financing profit making “Stamp Scrip”. This was used as money in many communities in Europe and the US in the Great Depression. Modern Stamp Scrip would be issued in a way so that it could not legally be considered to be money. Instead it would be issued as freely negotiable digital contract for anyone to obtain goods or services from the issuer a year later. The issuer would then also undertake to redeem it for full value. For the contract to remain valid over the year a negative interest cost would need to be automatically remitted to the issuer through the Internet.

Even if the contracts were not tethered to a SI, but to official money, the revenues from the negative interest cost during the life of gifted loyalty contracts can produce a profit on their redemption. To reduce the cost of a 2% negative interest cost each week, as accepted in the Great Depression, private money circulated much faster than official money. The profits of merchants could also increase, as the negative interest is not based on turnover like credit cards, but on the contracts (“money”) in their tills. This could reduce the negative interest cost to a fraction of credit card commissions and/or bank fees.

A universal basic wellbeing income could be created with self-liquidating money. Rich people could not accumulate it to help democratise capitalism without inflation or debt.

Bioregional Sustainable Energy Dollars (SEDs=$Z) provide a way to counter climate change on a bottom-up basis, coordinated globally by market forces defined top-down by the IASB. $Zs provide a way to transition to a circular economy to both sustain capitalism, and make it worth saving.

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About the Author

Dr Shann Turnbull BSc (Melb); MBA (Harvard) is the Principal of the International Institute for Self-governance based in Sydney and a co-founding member of the Sustainable Money Working Group established in the UK. He is a founding life Fellow of the Australian Institute of Company Directors, Senior Fellow of the Financial Services Institute of Australasia, Fellow of the Governance Institute of Australia and Fellow of the Australian Institute of Management. He co-authored in 1975 the first course in the world to provide company directors an educational qualification and wrote Democratising the Wealth of Nations. His bibliography reveals he is a prolific author on reforming the theories and practices of capitalism.

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