International Institute of Monetary Transformation (IIMT)
The Guiding Principle of Global Governance?
A contribution to the UN Commission for Sustainable Development?s Compilation Document serving as the basis for preparing the zero draft of the outcome document of Rio 2012 Earth Summit
Frans C. Verhagen, M.Div., M.I.A., Ph.D., sustainability sociologist
International Institute of Monetary Transformation, www.timun.net; email@example.com
Representing the International Peace Research Association at UN Headquarters
New York City
October 28, 2011
?As to methods there may be a million and then some, but principles are few. The man
who grasps principles can successfully select his own methods. The man, who tries
methods, ignoring principles, is sure to have trouble.?
Ralph Waldo Emerson, 1890s
A main theme of Tierra Fee & Dividend (TFD) system, following Emerson?s observation, is the need to first search for principles before searching for methods. One of the main shortcomings in UN conferences and negotiations seems to be a basic lack of interest, unwillingness, or inability in dealing in a substantial and coherent way with the ethical dimension of the various global challenges the UN and the world community face.
Thus, the main premise of the TFD system is that no stability in the monetary, financial, economic and commercial systems is possible without the principles of equity and sustainability. Underlying the principle of monetary sustainability is the principle of monetary justice not only in its social, ecological and procedural meanings, but especially in its transformational meaning as the foundation of a carbon-based international monetary system. Monetary justice is proposed here to be the main guiding principle that unifies many other important principles as spelled out in the recent Bonn DPI/NGO Declaration. Monetary justice is proposed here to function as the organizing principle for the much discussed integration of the three pillars of sustainable development as called for by the UN SG Report of December 2010 and in various DESA Reports. Consequently, monetary justice is presented as the guiding principle for sustainable global governance or, in Rio 2012 terms, as the guiding principle for the development of a global institutional framework that can lead to green economies and low-carbon and climate resilient development.
The world over millions of people are demonstrating and protesting in various Occupy settings the gross inequality between people and demand basic overhaul of the monetary, financial, economic and commercial systems, because these systems do not work for the 99% of them as these systems continue to enrich the few, impoverish the many and imperil the planet. It is most important that government, business and civil society leaders in the Rio process respond to this demand for fundamental and transformational change. The TFD system is presented as a transformational pathway of an integrated solution to a non-working international monetary system, an increasing global threat of catastrophic climate change and an unsustainable model of development.
WHAT IS MONETARY JUSTICE?
International monetary justice is the application of social, environmental, procedural and intergenerational justice principles to the international monetary system with its volatile exchange rates, imbalances in the balance of payments, fluctuating national and reserve currencies and an expensive global reserve system that costs non-reserve currency nations hundreds of billions annually. These justice principles also apply to domestic or regional monetary policies, which, in this globalizing world, are ever more intertwined as has become very apparent in the upheavals in the euro-zone countries.
There is little social monetary justice in the present international monetary system because this most basic system supports financial, economic and commercial systems that enrich the few and impoverish the many. Because of an unnecessary global reserve system, developing countries pay about $100 billion annually to maintain a 3 or 4 month supply of hard currencies. Nobel Economics laureate Robert Mundell has called this monetary system a ?non-system? and ?criminal.?
There is also little environmental or climate justice in the international monetary system because it imperils the planet?s climate and other Earth?s services by supporting those other international systems that continue to cause environmental damage, particularly climate damage.
There is also little procedural justice in the international monetary system because the major decisions are controlled by the industrialized nations using the rules of the IMF, Bank of International Settlements, World Bank and the World Trade Organization to set monetary rules of the road. One of the major reasons for both the Great Depression of the 1930s and the Great Contraction at the end of last decade is the instability of the international monetary system due to the lack procedural justice where rules of the road were and are presently set within a context of great inequality.
There is also little intergenerational justice in the international monetary system because the present international monetary leadership thinks short-term and is unable to take the hard decisions for fundamental reform. The recent euro agreements are more stopgap measures than measures of monetary craft for the common well-being of present and future generations.
In conclusion: Without monetary justice no monetary stability and sustainability is possible.
MONETARY JUSTICE IS IMPORTANT AND POSSIBLE
The international monetary system is the foundation upon which the other international systems rest. It functions as glue according to monetary historian Eichengreen, binding the monetary, financial, economic and commercial systems together. Pope Pius XI pointed to the lending of money as the life blood of the economic system?another metaphor indicating the connectedness of the monetary system with the economic system. However, the present international system is inequitable and, therefore, unstable and unsustainable. Monetary justice in its transformational sense of unifying the various forms of justice is necessary to transform it.
Needed for this transformed international monetary system is a plan that would lead to a financial system that is credit- rather than debt-based and that would be democratically governed by a Global Central Bank. The Chicago Plan of the 1930s was proposed by many outstanding economists to deal with the Great Depression. It withdrew the privilege of fractional reserve banking by privately-owned banks, making them utilities without the privilege of creating money.
Monetary justice in its transformational meaning demands realigning the inequality in the monetary system by the adoption of a standard, not a gold standard but a carbon standard that introduces fixed exchange rates and currencies, reduces volatility, affords little opportunity for currency manipulation and speculation and removes the need for a costly global reserve system.
Such carbon-based international monetary system is possible if government, business and civil society and particularly their leaders are able to think outside the box. Such thinking is demonstrated by Maurice Strong who believes that basing the international monetary system on a carbon standard is ?innovative? and that such system ?seems to be very promising particularly in light of the stalemate in post-Kyoto prospects?.(October 8, 2011 email); by author Bill McKibben, leader of the global www.350.org who believes a carbon-based international monetary system ?deserves careful attention? in these times where politics and biology increasingly intersect and demand a global solution; by those who signed an international petition entitled ?Make monetary justice the basis of your Rio negotiations? at http://www.change.org/petitions/g20-and-rio-summitteers-make-monetary-justice-the-basis-of-your-negotiations
MONETARY JUSTICE AND THE 21st CENTURY CARBON MONETARY STANDARD
Proposals for monetary reform, not monetary transformation, suggest moving away from the US dollar as reserve and vehicle currency to a basket of currencies, a particular set of commodities or the IMF?s Special Drawing Right (SDR). A carbon-based international reserve currency could even be a possible alternative. However, all these reforms make an ineffective system a little less ineffective. Others want to return to a gold standard. This standard, never perfect in the past, has rigidity and liquidity problems. Moreover, given the expanding global economy, there would not be enough gold to meet the needs of all.
The International Institute of Monetary Transformation has developed a carbon-based monetary standard with the Tierra as its unit of account. It is set to a specific ton of CO2e per person, determined by the GHG emission targets set by the IPCC. It is based upon the assumption that the control of the changing climate is humanity?s foremost challenge in the 21st century and that climate justice is an essential value in redressing the ecological imbalance caused by the ecological indebtedness of industrialized nations. This standard would transform the international monetary system and go beyond the suggested monetary reforms.
This transformed, i.e. carbon-based, international monetary system is integrated with the Fee & Dividend carbon reduction method as opposed to the cap-and-trade and other carbon reduction methods. Thus, the system is called the Tierra Fee & Dividend system (TFD). The main aim of the TFD is to introduce a just, stable and sustainable international monetary system, to combat the climate crisis and to advance low carbon, climate-resilient development.
Adopting the TFD with its carbon-based monetary standard would mean fixed exchange rates and stable currencies which would be convertible to each other because they are all based upon the same standard. That standard could also become the basis of the global currency of the Tierra. No longer would a costly global reserve system be necessary. Adopting the TFD with its carbon-based monetary standard would also mean an institutionalized transfer of funds from carbon debtor nations in the global North to the carbon creditor nations in the global South. Thus, carbon accounts would be settled in the nations? balance of payments. Adopting the TFD with its carbon-based monetary standard means the establishment of the Tierra, UN affiliated, federally structured Global Central Bank with its administering, monitoring, regulating and money creating functions. This global bank would be the centerpiece of the global governance framework that is one of the two main topics of the Rio 2012 process.
Note that the notion of a carbon-based international monetary system such as the TFD is new and novel or, in Mr. Strong?s terms, ?innovative?. The other two components of the TFD, i.e. banks being utilities and an international financial system being credit-based rather than debt-based are positions that are increasingly being advocated, following the example of the supporters of the Chicago Plan of the 1930s.
Major references to the TFD are: IIMT?s forthcoming book entitled THE TIERRA SOLUTION: Monetary Transformation, Climate Change and Sustainable Development. (Cosimo Books January 2012); articles for the 2nd Yale/UNITAR conference on Global Environmental Governance (September 17-9, 2010), for the Stakeholder Forum?s Sustainable Development Governance program; Powerpoint presentations at the IPRA Conference in Sydney, Australia in July 2011, at the UNFCCC Cancun Conference in December 2011, and the upcoming ones at the CoNGO Sustainable Development Committee and at the Riverside Church conference called ?Monetary Justice: The Guiding Principle for Global Governance?? which, beside the UK Christian Council for Monetary Justice at http://www.ccmj.org would be the first US religious organization that engages in monetary justice discussions as basis of global governance
The following table presents a comparison along some dozen features that illustrates the basic differences between the present IMF international monetary system and the proposed carbon based Tierra global monetary governance system.
COMPARISON OF THE PRESENT IMF AND TIERRA MONETARY SYSTEMS
||All are convertible
||None ?no need
|Global reserve system Yes and
||Yes and costly
currency Difficult to achieve
||Difficult to achieve
||Phase 2 of Tierra MS
||Floating and volatile
||Fixed and stable
||Financial and carbon
||IMF, BIS, WTO, IBRD
||UN Federal Central Bank
||No enforcement authority
||Important common value base
|Connection to climate crisis
||Strong and essential
| Historical perspective
The September 2011 DPI/NGO Bonn Conference?s Declaration states in line 265 that governments, among many other things, are ?to rethink the monetary system based upon a carbon standard.? Given that the Earth Summit wants to develop ?New Foundations for the Future?, it is essential that among those foundations the monetary foundation is going to be considered because it is the international monetary system functioning as glue, a lubricant for the other international system that can be considered to be the linchpin of those systems. As a consequence it is crucial that the Rio 2012 Earth Summit process basing itself on the requirements of monetary justice give priority to monetary governance as the basis of governance systems for the 21st century.