International Institute of Monetary Transformation
Frans C. Verhagen, M.Div., M.I.A., Ph.D., President
www.timun.net; [email protected]
17 June 2009
On 11 June 2009 US Secretary Geithner advised his colleagues of the G8 finance ministers assembled at Lecce, Italy, that “finance ministries in both developed and developing countries should play a lead role in designing a new financial framework for the Copenhagen agreement on climate change that will mobilize private and public funds required to meet the post-2012 financing needs for adaptation, mitigation, and land use activities in developing countries”. It is proposed here that the carbon-based international reserve currency of the Tierra become part of that new financial framework.
What are the important questions for the emergence of a new international reserve currency such as the Tierra? During his interview in Lecce Egyptian finance minister Youssef Boutros-Ghali who is the chairman of the IMF’s International Monetary and Financial Committee, supporting a proposal from China for a new global currency to replace the dollar as the world’s main reserve currency, stressed that this was a long-term project with many potential hurdles. “The idea is appealing, but it’s a big undertaking, it will take a long time. To have a substitute reserve currency you need to create it, you need to have an issuer for it, and a market for it.” He said the IMF’s internal unit of exchange — SDRs — was an accounting currency and would not be a suitable unit for the project, as China and Russia have suggested.
WHAT IS THE TIERRA?
It is a new international, carbon-based reserve currency that is part of a nation’s carbon account in its balance of payments. It would start out a reserve currency, not a vehicle currency. If working well as a reserve currency nations or regions may choose to use it as a vehicle currency. The US dollar is presently both a reserve and a vehicle currency. In phase 1 the Tierra would replace the dollar, euro and yen as a reserve currency; in phase 2 it would replace those vehicle currencies and be part of world monetary union under the auspices of the UN.
WHY TO CREATE THE CARBON-BASED INTERNATIONAL RESERVE CURRENCY OF THE TIERRA?
A new international reserve currency has been recommended by the UNGA President’s Commission on Monetary and Financial Crises and strongly promoted by China and Russia and less so by India and Brazil. A national or regional currency cannot function as an international reserve currency because those currencies are, on balance, disadvantageous to both the issuing and using countries and particularly to the monetary, financial, economic systems. The Yekaterinburg conference of BRIC Countries and the Shanghai Cooperation Organization seems to become a turning point in a de-dollarization process.
It is to be carbon-based in order to have it function as a major institutional mechanism to combat climate change, particularly in balancing the nations’ carbon accounts by transferring Tierras from ecological debtor countries in the global North to ecological creditor countries in the global South.
The new reserve currency would be a major means for ecological debtor and financial creditor countries in the North to settle their ecological debts with their ecological creditor debtor countries in the South who are given the opportunity to settle their financial debts within the context of their ecological credits. There is no escaping the fact that the ecological and financial indebtedness of nations are part of one reality and have to be resolved in an integrated manner. See IIMT’s THE TIERRA SOLUTION: A Monetary Approach For Dealing With Ecological and Financial Indebtedness In The Global North and South, to be published by Cosimo Publishing in New York in early 2010.
HOW DO YOU CREATE THE TIERRA?
Being carbon-based, the Tierra currency would be allocated to all adults and adolescents on an equal basis in an amount determined by the carbon or CO2e target set by the UNFCCC. These carbon emissions permits would be managed by a national Tierra Administrative Board, an independent trust. If these national Tierra Boards decide to have individuals use their CEPs as a means of exchange the reserve currency can be considered the beginning of vehicle currency.
The value of the Tierra would be based upon a carbon standard which is determined by the past, present and future carbon prices on the European and Chicago Carbon Exchanges. It would be set for several years so that it can be a stable carbon standard upon which nations can peg their currencies. Thus, the carbon standard will start functioning like the classic gold standard with its fixed exchange rates which was in effect between the 1890s and WW I. Like the maneuvered gold standard it would have a narrow band within which currencies could fluctuate.
WHO OR WHAT WILL BE THE ISSUER OF THE TIERRA?
The issuer will be a UN Monetary Board, established after negotiations during the UN June 24-6 Conference in New York and the Copenhagen December 09 conference. The Tierra would become the institutional funding mechanism in the UN system for funding development and climate mitigation and adaptation.
WHAT WILL BE THE MARKET FOR THE TIERRA?
For candidates of a new international reserve currency such as the renminbi or ruble to be viable it is to manage to be accepted by the international market. These currencies might be regionally accepted as reserve currency during these times of an inconvertible dollar and fluctuating exchange rates, but they have the same weaknesses as the dollar, euro or yen as international reserve currencies. There will not be an international market for them.
The market for the Tierra as an international reserve currency is global, because the challenge in dealing with the climate crisis is global. Nations, that face their common, but differentiated responsibilities will accept this new reserve currency because it would contribute, to a great extent, to the resolution of the economic crisis through resolving the climate crisis. It would provide liquidity to all on an equitable basis, thus promoting purchasing power in both North and, especially, in the South. The carbon-based international reserve currency of the Tierra would be able to make that economic contribution because it taxes those countries and individuals whose carbon footprint is above the internationally set carbon targets. At the same time the Tierra currency as part of the carbon account in the balance of payments would be an institutional mechanism to deal with humanity’s greatest challenge of maintaining the planet’s atmospheric concentrations of GHGs at a safe level.
WAS THERE EVER A TIERRA-LIKE RESERVE CURRENCY?
Yes and No. There was an emission-based currency unit—Ebcu–in the late 1990s the originators of which even held an international conference in 2000 that produced the FAESTA Noordwijk Aan Zee Draft Treaty. However, it was not conceived as a reserve currency that would be part of a nation’s carbon account in its balance of payments. But, like the Tierra, it is based upon emissions. Both the Tierra and Ebcu are the only emission-based currency proposals amidst a dozen other currency proposals that are based on a basket of currencies, the consumer price index or other monetary or economic arrangements.
HOW DOES THE TIERRA COMPARE WITH THE SDR?
Unlike the SDR, the Tierra offers a transformational approach to solving ecological and financial indebtedness–using carbon accounts in the balance of payments as an institutional means to fund development and climate mitigation and adaptation. Furthermore, the IMF does not have the capacity to deal with the various dimensions of the climate crisis. It also does not have the needed legitimacy to represent the G192, given its quota system and weighted voting.