Chapter Four: One Country, Four Currencies
Now we've surveyed the various types of money system, we come to the exciting bit - specifying the integrated multi-currency system of the future. We have seen that three groups (commercial institutions, governments and users) can create money. Very little can be said in favour of allowing the commercial creation of money to continue. Instead, money should be created by non-profit-seeking organisations representing the people using it. In the case of a democratic country, this would obviously include a national or regional government working on behalf of its people.
At least four types of money are needed. One is an international currency, playing the role taken by gold before the collapse of the gold exchange standard. The second is a national or regional (sub-national) currency that would relate to the international currency in some way. Thirdly, we would need a plethora of currencies which, like LETS, the WIR and the commodity-based currencies, could be created at will by their users to mobilise resources left untapped by national or regional systems. Many of these user currencies would confine their activities to particular geographic areas, but some would link non-spatially-based communities of interest. And fourth, as our current money's store of value function can so easily conflict with its use as a means of exchange, special currencies are needed for people wishing to see their savings hold their value while still keeping them in a fairly liquid form.
An international currency, the ebcu
|For an explanation of the various exchange mechanisms, see Appendix 1.|
The dollar, the pound sterling, the euro, the Swiss franc and the yen are all 'reserve currencies'. In other words, central banks keep their reserves in these currencies in case they have to intervene in the markets to support the exchange rates of their own currency. A country operating a reserve currency has an enormous advantage because other countries willingly sell it their goods and services but dont use a lot of the money they receive to buy its goods and services in exchange. Instead, they leave the money sitting in their central banks. Holders aren't even paid interest by the country that issued the currency.
In addition, reserve currencies are used as world money. For instance commercial banks in Europe will accept deposits of dollars and lend them out to other customers who, rather than using them for purchases in the US, frequently pay suppliers in third countries instead. This enables the dollars to circulate without ever returning to a US bank. Such dollars are known as Euro-dollars, but Euro-versions of the pound, the euro, the Swiss franc and the yen also exist. On a more basic level, people use reserve currencies for day-to-day transactions in countries experiencing high rates of inflation and often keep foreign notes as a standby.
In 2005, about 64 percent of the $3.81 trillion of world currency reserves were held in dollars and 20 percent in euros.This means that, over the years, the US has received billions of dollars worth of imports and given nothing in return apart from paper notes and electronic credits. Its earnings from seigniorage have been massive: in 1999 alone, its trade deficit was expected to be $230 billion although not all of this was seigniorage, of course. An important reason for the launch of the Euro was that it stands an excellent chance of displacing the dollar as the worlds preferred reserve currency and thus earning for the EU a much bigger share of the seigniorage gains.
Allowing the world's rich countries to profit from poorer ones in this way is obviously wrong. Moreover it flies in the face of the principle that we've just established, namely that money should be created and its supply controlled by its users and not, as in this case, nations making huge profits for themselves.
Which scarce resource?
Chapter One argued that every economic system should establish the scarce resource whose use it seeks to minimise, and then adjust its systems and technologies to bring the least-use solution about. Since people always try to minimise their use of money, an international currency should be based on the global resource whose use it is highly desirable to minimise. If that link was made, anyone minimising their use of money would automatically minimise their use of the scarce resource.
If we accept that view (and not everyone does), what resources do we need to use less of? Certainly not labour or capital goods. There is worldwide unemployment and, in comparison with a century ago, our capital stock is huge and underused. But the natural environment is grossly overused, particularly as a dump for our pollutants. In particular, the Intergovernmental Panel on Climate Change (IPCC) believes that 60-80% cuts in emissions of greenhouse gas pollutants which are produced largely a result of fossil fuel use, are urgently needed to lessen the risk of a runaway global warming. This is one of humankinds most serious problems, and I therefore believe that the base of the world currency should be selected accordingly.
But how can a link between a currency and lower fossil fuel use be made? If the currency we have in mind were linked to a unit of energy, that would effectively encourage more energy production throughout the world. We want to achieve quite the reverse and to link our monetary unit to something that discourages fossil fuel use even when there is pressure an expansion of the amount of money in circulation.
How can this be done? Contraction and Convergence (C&C), the subject of Schumacher Briefing No. 5, is a widely-accepted plan developed by the Global Commons Institute in London for reducing greenhouse gas emissions. Under it, the international community agrees how much the world's average temperature can be allowed to rise above that in pre-industrial times without causing a catastrophe. Since the first edition of this book, a consensus has developed that a 2°C rise is the absolute limit. Of this, a 0.8°C rise has already happened as a result of the increase in the concentration of carbon dioxide in the atmosphere from 280 ppmv (parts per million by volume) before the large-scale use of fossil fuels to 380 ppmv today. A similar temperature rise is unavoidable because of the lags in the system.
In other words, we've only got a 0.4°C breathing space in which to contract greenhouse gas emissions to the level at which each year's annual discharge can be broken down or absorbed by the Earth's natural sinks, such as its forests and oceans. By estimating the sinks' yearly absorptive capacity, scientists can calculate the total tonnage of greenhouses gasses the world can release without exceeding the temperature rise limit in the years before absorption and emissions are brought into balance.
That's the Contraction element. The next question is: how should this total tonnage be shared out around the world? Most proposals divide it up on a country-by-country basis. Some ideas involve "grandfathering", which means giving each country a share based on the amount of emissions it is releasing at present. Others take a contrary approach and say that countries which have become rich by causing the climate problem should get reduced shares now. And still others say that the division should be on the basis of each country's population.
C&C is a hybrid. It says that, eventually, there should be "equal per capita entitlements"-in other words, national allocation according to population-but that, initially, the big emitters should get bigger allowances. This grandfathering element would be phased out over a number of years, the Convergence period, until these countries converged on the same per capita allocation as everyone else.
Although I worked to spread C&C for over ten years, I now think that proposing to allocate emissions rights on a country-by-country basis is a mistake. It inevitably sets each country against all the others. Each will maintain it is a special case and needs a bigger allowance during Convergence, thus creating the circumstances in which an adequate treaty becomes impossible to negotiate, particularly in the limited time available.
Energy ration coupons
In any case, whose right is it to emit? Does the right belong to the various national governments or to the people of the world? Don't we all have an equal, human right to emit? And, if so, shouldn't that right be given to us personally, perhaps through an annual issue of tradable emissions permits (Let's call them Special Emissions Rights, or SERs) which we could take to a bank or post office to sell, just as if the permits were a foreign currency?
Accordingly, Feasta, the international network though which I work, has developed its own variant of C&C in which every adult in the world would get an equal, personal share of each year's declining level of emissions. People in rich, energy-hungry countries would not get more SERs during a convergence period because, since they would sell their rights when they got them, that would amount to giving them more cash than people in poorer lands.
SERs would essentially be personal energy ration coupons. The banks which bought them from people would sell them on to fossil fuel producers and an international inspectorate would monitor the producers to ensure that their sales did not exceed the number of SERs they had purchased. The inspections would be a surprisingly easy job as nearly 80% of the fossil carbon that ends up as manmade CO2 in the earth's atmosphere comes from only 122 producers of carbon-based fuels. The used SER coupons would then be destroyed.
The emissions trading system launched by the EU in January 2005 as a 'cornerstone' of its climate programme runs along these lines to some extent. Unfortunately, however, the emissions permits it issues are not being given to each adult EU resident but to big energy users. Moreover, it is not importers and producers of fossil fuels who have to produce permits to inspectors - there would have been less than 200 of these - but, in the 2005-2008 period, the operators of 11,500 plants, with more to follow as the scheme is extended. As a result, it is a bureaucratic nightmare wide open to corruption.
Equitable but not fair
Giving everyone an equal SER allocation, while equitable, would not necessarily be fair, because people in some parts of the world need to make a lot of adjustments before they can live as well on their allowances as people elsewhere. For example, the people of Bangladesh and other low-lying countries need to use a lot of energy to protect themselves against rising sea levels.
Feasta therefore proposes that a part of each year's world emissions budget be held back as a "Convergence fund". The SERs assigned to the fund would be sold and the money shared out among governments so that they could finance projects to protect their citizens from the effects of rising temperatures and to enable them to live as well as possible at a low level of fossil energy use.
Regardless of which form of C&C was adopted, because some countries produce more fossil fuel in relation to the size of their population than others, an international trade in SERs would develop. This is a key feature of the scheme as it would generate an income for people in some of the poorest countries in the world and give their governments an incentive to follow a low-energy development path.
But what currency are energy-hungry nations going to use to import their fossil fuel? If some of them used their reserve currencies, they would effectively get the right to use a lot of their extra energy for free. This is because much of the money they paid would be used as an exchange currency around the world rather than being used to purchase goods from the country that issued it.
To overcome this, the international agency (IA) which issued the SERs to everyone would also issue governments with energy-backed currency units (ebcus) according to the size of their populations. It would hold itself ready to supply additional SERs to whoever presented it with a specific amount of ebcus. This would fix the value of the ebcu in relation to a certain amount of greenhouse emissions, and subsequently to the use of fossil energy.
The ebcu issue would be a once off, to get the system started. If a fossil fuel producer actually used ebcus to buy additional SERs from the IA in order to be able to buy more fossil energy, the number of ebcus in circulation internationally would not be increased to make up for the loss. Instead, the ebcus paid over would simply be cancelled and the world would have to manage with less ebcus in circulation. In other words, the IA's obligation to supply additional SERs would be strictly limited by the amount of ebcus it put into circulation. There would be no open-ended commitment.
The prices set by the international trade in SERs would establish the exchange rate of national exchange currencies (see Section 2 below) in terms of ebcus, and thus in terms of other national exchange currencies. This is because if the price that fossil fuel producers were prepared to pay for a SER was, say, £100 and trader were selling a SER on the world market for 5 ebcu, each ebcu would be worth £20. This would set the prices for imports and exports as these would also be paid for in ebcus.
Limited by energy rather than by credit
Under this system, economies would be constrained by the energy supply rather than by the credit supply as they are at present. If a country put so much of its exchange currency into circulation that the economy expanded faster than the rate at which it became more energy-efficient, its demand for fossil energy would rise. This increased demand would allow energy companies to increase their prices, thus causing inflation that (by making exporting more difficult and encouraging imports), would cut the level of economic activity in the country and thus its level of energy use. In other words, national economies could only expand at the rate they became more fossil-energy efficient, which is just what we want. And, for the first time since the gold exchange standard was abandoned, both the international and the national currency would represent something real, although the latter's value in terms of the former would not, as we have seen, be fixed. The system would be nicely self-balancing and would cause inflation whenever it operated.
Click here to read BOX 5: The end of the two Gold Standards
There is a possibility that, if world energy efficiency could not be increased as fast as the monthly supply of SERs was reduced, the price of an SER would rise in terms of ebcus until it reached the price at which the IMF was prepared to sell additional SERs. If such sales were made and the ebcus involved withdrawn from global circulation, the world's money stock would be reduced. This would cut the amount of trading it was possible to carry on and, as a result, the level of fossil energy consumption would fall as well.
Essentially, the proposed system is a version of the gold exchange standard (see Box 5) in which the right to burn fossil energy has replaced the yellow metal, and where ebcus play the role of the US dollar. This might lead traditionalists to suggest that the world should go back to the real gold standard rather than an ersatz one but, apart from the aura surrounding the metal, it is hard to see why it should. The following arguments all stand against it:
|A floating non-system|
|Since the fixed link between the dollar and gold was cut in 1971, the value of the dollar has fluctuated widely in terms of the amount of gold and oil it could buy.|
1. Expending energy and effort on mining the metal would be as wasteful as making Yap stones.
2. The supply, and therefore the value of gold in terms of all other commodities, is liable to fluctuate unpredictably because new techniques and new mines can increase its availability at any time. The recent development of heap leaching made gold less costly to extract.
3. Gold production is mainly concentrated in seven countries, South Africa, Russia, Indonesia, China, Uzbekistan, Brazil and Peru. Thus, remonetarising gold would chiefly benefit these countries rather than, as in the case of the ebcu, the whole of the non-industrial world.
4. A return to gold would do nothing to make the distribution of global income any less unfair. It would also do nothing to protect the global environment. Indeed, it would increase pressures on the natural world as gold mining causes serious environmental damage.
1. National and regional exchange currencies.
The function of these currencies would be solely as a means of exchange. They would not attempt to be a unit of account or a store of value. The unit of account function would be filled by the ebcu and businesses would convert the balances from their books kept in their national exchange currencies, into ebcus at the end of each accounting period. Turnover and profits or losses would therefore be comparable across national borders.
As discussed in the last chapter, exchange currencies would be created by each country's central bank and spent into circulation by the regional or national governments' spending departments such as education, health and social welfare.. If this spending was excessive, or some other factor caused the national economy to inflate, there would be no means of withdrawing the excess currency from circulation to damp things down apart from increasing tax rates and/or cutting government spending so as to run a budget surplus. This is because governments would no longer permit open market operations (the buying and selling of bonds currently carried out by central banks) to control the amount of money in circulation.
There are several reasons for wanting such a ban. One is that an exchange currency is not the right vehicle for bonds, or other long-term savings, which would be kept in a store-of-value currency (see Section 3 below) instead. The only loans in the exchange currency that would be permitted would be to cope with short-term imbalances between receipts and expenditure. These might be limited to less than a year. Banning open market operations would also allow the interest rates on savings in the store-of-value currency to be determined solely by the supply of funds, and the risk and potential return of the projects proposed at the time. In other words, the allocative function of interest would work properly as the capital market would not be constantly blown hither and thither by control-of-money-supply considerations.
The benefits of inflation
Under the new system of issuing exchange money, many central banks would be happy to allow low levels of inflation to occur. This is because, as currency managers, they would they see their primary job as ensuring that enough national exchange currency was always available to create easy trading conditions. Because another currency was providing the store of value, they would not be overly concerned about preserving the purchasing power of their currency provided that it was not inflating so rapidly that it was becoming less acceptable in the market place. Moreover, they would welcome the seigniorage that inflation enabled them to earn. And, if an inflation did occur, most governments, rather than raising taxes to stop it, would probably allow prices to rise until the cash value of the trading going on was right for the total amount of exchange money in circulation.
We have already seen that an inflation would occur whenever the fossil energy supply was brought into balance with the exchange currency supply, and hence with the level of trading. Such an inflation, provided it was not excessive, has advantages besides providing the state with revenue from seigniorage. One is that it ensures that there is a cost to holding money so that people spend it sooner rather than later, just as they did when bracteates were liable to lose their value overnight. Many readers might be unhappy about this. They will feel that designing a monetary system that deliberately sets out to encourage people to spend is wrong. Under the present system, they know that their spending has an impact on the environment and they feel under a moral obligation to make their personal impact on the planet as light as possible.
Under the new system, however, the most damaging human environmental impact will be reduced automatically year by year, no matter how much spending goes on. Indeed, it will only be by spending on such things as human labour that we will be able to maximise the benefits we obtain from annually reducing the amount of fossil energy burnt. The German currency reformer, Silvio Gesell, saw the damage that the failure to spend money promptly did in the 1920s and 30s and argued that demurrage should be charged to users who delay money. He drew a parallel with the ship owners and railway companies who charge a demurrage fee if a ship or a wagon is delayed by the user's failure to load or unload in the agreed time. Under the current proposals, inflation is used as a handy way to collect such a fee. although there is a side-effect from doing so. A proper demurrage scheme would not affect the price level, while an inflation obviously does.
Another benefit from a mild inflation is that it allows prices to change in relation to each other almost painlessly. For example, it allows firms to make creeping adjustments to wage differentials. This means that workers with skills in short supply can have their real wages raised gradually while those in a declining area of business, people who would never agree to take less money in cash terms, can be given increases of less than the inflation rate. This process signals to the workers in the declining sector that they should seek better-paid jobs and enables the sector to shrink gracefully as its workforce gradually moves to expanding areas of the economy. The lower real wages also allow the declining sector to survive longer. In short, inflation provides a near-painless adjustment mechanism that is going to be almost essential if the massive changes required to enable economies to become sustainable are to be carried out rapidly without causing bankruptcies and labour unrest.
Smaller might be better
Except in the tiniest countries, regional (sub-national) exchange currencies might be better than national ones in meeting users' needs. A drawback that can arise with a national exchange currency and which is almost inevitable with an international currency such as the Euro is that if a major crisis (such as the collapse of an important industry) takes place in one region of a country and leaves other regions where the industry was absent unaffected, it is very difficult to attract or grow replacement industries to the affected region. That is, unless its price levels drop, in particular, its labour costs. The price levels that need to fall were, of course, set before the industry collapsed but are now too high to make the depressed area the most profitable location for a new, or expanding, business. Moreover, the newly-unemployed in that region will fight against accepting lower wages to "price themselves back into work" because many will have mortgages or other financial commitments based on their present wages. Consequently, it could be years before the region is able to restore its competitiveness in relation to the rest of the country (or, with the Euro, the rest of Europe) and for its unemployment to begin to fall. Great social distress could arise.
Sub-national exchange currencies would overcome this problem because the fact that the region was exporting less, and importing more, after the industry collapsed would mean that its exchange rate would fall in relation to the ebcu, and thus in relation to the currencies used in the rest of the country. This would restore its competitiveness in a matter of months. If regional currencies had been in operation in Britain in the 1980s when London boomed while the North of Englands economy suffered after the closure of its coal mines and most of its heavy industries, then the North-South gap which developed might have been prevented. The North of England pound could have been allowed to fall in value compared with the London one, saving many of the businesses that were forced to close.
One final point. The market should solely determine the value of national and regional exchange currencies in relation to the ebcu. Central banks should not maintain ebcu and foreign currency reserves for supporting their currencies. Speculators ought to be able to moderate the rate of change of the currencies and prevent them overshooting their new values at least as well as any central bank. In addition, leaving the determination of relative exchange rates strictly to the market would make the establishment of regional currencies a much simpler process as there would be very little financial infrastructure to put in place.
2. User-controlled exchange currencies
Currencies created by users themselves only develop in circumstances in which the national currency is proving inadequate. We already discussed how, the WIR was set up in the currency crisis of the 1930s and how LETS systems are founded by people who have both wants that they would like to fill, and time or other resources for which they cannot find a market in the mainstream economy. In the same way, businesses list their goods and services with barter organisations if they cannot sell them for regular cash. Usually these supplementary currencies are counter-cyclical. They boom when the national economy is depressed, and shrink when it is buoyant.
At this point in the first draft of this paper I wrote: "Countries setting up regional exchange currencies on the lines discussed in the preceding section will not provide a fertile climate for supplementary currencies with a predominantly economic purpose. The regular currency will work too well. On the other hand, supplementary currencies which are primarily social such as Time Dollars will have an important role to play in areas with mobile populations. " On reflection I'm not sure that this is true. The level of activity in the national economy will depend on the amount of fossil fuel available and the efficiency with which it is used. By contrast, the level of activity in the local economy will depend more on human and renewable energies, and on the availability of local resources. If this is correct, there will be a need for local exchange currencies too and it will be interesting to see how the balance between local and national ones works out.
Click here to read Box 6: A low-cost way to start a regional currency
3. Store of value currencies
The establishment of separate store-of-value currency in a nation or region is desirable because it enables the medium-of-exchange currency to work better. One problem with trying to get a single currency to fill both functions is, as we've seen, that if people withdraw money from the circular flow because they want to save/hoard/invest it, they can leave an inadequate amount for trading purposes. This could cause firms to cut their prices to encourage sales, and once people recognise that prices are falling steadily, they will put off buying for as long as they can, thus taking even more money out of the system, reducing purchasing power and making the downturn worse.
Inflation presents another problem to a dual-purpose currency. We just discussed how a moderate level of inflation is desirable because it can help declining sectors of an economy to adjust to changing circumstances. However, any inflation at all means that a currency's store of value is being eaten away. Consequently, it is impossible to strike a perfect balance between the two functions.
Nothing is perfect
There is no such thing as a perfect store of value in this world and there cannot therefore be a perfect store-of-value currency. The exchange value of something is not absolute; it depends on its scarcity and on factors and fashions that vary over time. Putting one's money into real assets, such as property or the stock market does seem to protect its value in the very long term. Historically, however, there have been periods of two or three decades in which the purchasing power of the assets would have been significantly above or below the initial level. As the graph shows, anyone who bought the shares that made up the original Financial Times Index when it was launched (continually adjusting their portfolio to match it exactly), would have seen the purchasing power of their holding show a loss from 1937-1960 and a gain from 1960- 1973. For brief periods the losses were massive: in 1939 the holding would have lost 60% of its value, and in 1975 over 70%. The peak gains were of a similar size, however, and on top of them, dividends would have been paid every year. By contrast, anyone keeping their money in a normal, non-interest-paying account at the bank or under their bed, would have seen its purchasing power fall drastically. Between 1971 to 1991, for example, the Deutschemark lost more than 52 % of its 1971 value, the US dollar more than 70 % and the British pound more than 84%. 30
Read about how regional currencies saved the day for Argentina
There is a precedent for having a currency for spending and a currency for saving and it seems to have worked well. Between the 1950s and the late 1970s, people who wished to move capital out of the Sterling Area - a group of countries that used sterling for trading among themselves and who often kept their gold and foreign exchange reserves in London - had to buy whatever foreign currency they needed on a special market at a special exchange rate. The rate was quite different from that which applied if they wanted foreign currency for consumption purposes such as holidays or importing goods. The foreign currency they received for a capital transaction such as the purchase of a holiday home or a business abroad would have been provided by someone wishing to move their capital in the opposite direction. The exchange rate was determined by supply and demand. Effectively, then, there were two separate types of sterling, capital sterling and consumption sterling. In 1974, when my wife and I sold a house we had built ourselves in Jamaica and brought the Jamaican dollars into the Sterling Area, we received twice as many pounds as would have been the case had we been exchanging the proceeds of an export deal.
The advantage of dividing the foreign exchange market in this way was that capital inflows and outflows always balanced. As a result, capital flows did not distort the exchange rate that applied to imports and exports. However, in the present system the capital and
import/export flows are combined. The result is that a big capital inflow discourages exporting by making it less profitable and encourages imports by making them cheaper. New Zealand has suffered badly from this effect. Since the mid-1980s it has sold off its banks, its railways, much of its industry and a lot of its forests to foreign investors, only to see the money they paid strengthening the exchange rate of the New Zealand dollar. This damaged the export earnings of its farmers and encouraged a flood of imports of goods, even soups and other food products previously made at home, sharply increasing the level of unemployment. Quite literally, the country sold its inheritance for, among other things, a mess of potage.
In the system envisaged in this Briefing, people would want to get any surplus spending power they had out of the exchange currency as quickly as possible because of the rate at which inflation was stripping it of its value. They would therefore convert it into the store-of-value currency at the ruling rate and either invest the proceeds themselves, or hand them over to banks and pension companies to invest for them. Then, when they wanted to spend their savings, they would convert their store-of-value money back into exchange money at whatever the market rate was at the time.
Bank loans, other than less-than-one-year overdraft facilities, would be made in the store-of-value currency which the firm or person taking them out would convert into exchange currency. Interest on these loans, however, would be paid in the exchange currency so that if lenders made a profit after having covered the exchange money costs of their activities, they would have to convert the surplus to store-of-value funds. Similarly, companies would pay dividends on their shares in exchange currency. These arrangements would make it possible to pay interest without either having to increase the amount of exchange money in circulation or reducing the amount in the circular flow. Loan repayments would, of course, have to be made in store-of-value money that the borrower had to buy at the going rate. A futures market would probably appear as soon as the system was adopted so that borrowers would know exactly what the exchange currency cost of their repayments would be.
People or companies wishing to move their capital out of the region or country would use their store-of-value money to buy foreign store-of-value currency provided by people moving their capital in the other direction, exactly as in the old Sterling Area system. This would prevent a sudden 'capital flight' and make the store-of-value currency very stable without preventing people moving their capital whenever they wished. Another feature contributing to the stability of the store-of-value currency would be that if more people wanted to save rather than to borrow, the exchange rate between the exchange currency and the store of value currency would shift. This would decrease the store-of-value loan required to do a particular job, and thus the amount of exchange currency required to pay the interest on it. This would encourage more people to borrow and fewer to save, bringing supply and demand back into balance.
As I show in my book Short Circuit, even flows of capital from one part of a country to another can have damaging consequences.31 This is because they create employment in the places in which they are invested and thus encourage workers to move to those districts from elsewhere. The arrival of extra people creates further investment opportunities in the areas in which the money was invested. On the other hand, it becomes more difficult to find good investment opportunities in the areas the migrants have left due to the falling population and these districts start to decline. In other words, a positive feedback builds up, with some places becoming richer while others become poorer. Exactly the same effect can develop between countries if people are able to emigrate. As store-of-value currencies would prevent net capital flows from country to country, they would therefore tend to inhibit the global economic polarisation that has recently been taking place.
5. Special purpose currencies
In addition to the four types of money we have mentioned, there would be a need for short-life currencies to fund particular projects. These currencies could perhaps be along the lines of the first stage of the Romas (see Box 6) or the Deli Dollars issued by a delicatessen in Great Barrington, Massachusetts, ten years earlier. The deli faced closure because no bank would advance $4,500 to enable it to move premises. Its dollars were vouchers entitling the bearer to ten dollars worth of food and drink after the delicatessen had relocated. They were sold to customers and the general public at $9 each and became valid for redemption on a staggered basis months later. Enough money was raised to enable the deli to relocate and the notes, although not intended as a currency, to a limited extent circulated as one. It is possible to imagine similar notes being issued to help finance, for example, a wind-energy project. Each note could represent 100Kwh of electricity and be used to pay for it months, or years, later.
The details of possible special currencies are not important at the moment, however. This is because, although they will come in a limited number of basic types, they will exhibit an enormous amount of variation as people adapt them to perform specific functions in many different circumstances. There is little point in speculating on the variations here.
Balancing the global and the local
There would be huge repercussions from introducing the four or five different types of currencies we have discussed. In effect, they would put a semi-permeable membrane around each national or regional exchange currency area. Money, goods and services would be able to pass through these economic membranes, but whatever flows arose would automatically be balanced by an equal flow in the other direction. No longer would the poorer parts of the world be stripped of resources without receiving something of equivalent value.
Similarly, the power that international investors currently have over national governments would be greatly reduced. It would no longer matter whether a big investor moved his money into a country or decided to take it out. The market would ensure that whatever was decided, the external exchange rate of the country's store-of-value currency against other store-of-value currencies would adjust by enough to encourage people to move an equivalent amount of their funds in the opposite direction. As the exchange rate of a country's exchange currency with other exchange currencies would be unaffected by changes in the value of its store-of-value currency, a national or regional government would be able to pursue whatever investor-unfriendly policies it wished, knowing that normal import-export trading would continue.
Globalisation would not be dead once international money flows had lost their power to bend national economies to their will but its source of energy would be gone. As a result, local economies would be able to re-emerge and, protected by their membranes, move towards stability and sustainability as rapidly as they wished. No longer would they fear that moving towards sustainability would lead to their economies being undermined by competition from parts of the world with lower costs from unsustainable production. Instead, in a complete reversal of the present situation, they could look to the financial markets for protection. In the light of this, changing the way money is created is the most important step this generation can take towards securing its own and posterity's future. In Lewis Mumford's phrase, "It is the way to turn a power economy into a life economy."
Continue to Chapter Five: Moving On
Related links in the Feasta website:
Curing Global Crises: Let's Treat The Disease Not the Symptoms
Climate and Currency: Proposals for Global Monetary Reform
Home page of Feasta website