The environmental challenges we face today, from spreading deserts to rising oceans, compel us to reconsider the conventional concepts of growth and recognize that they cannot be easily reconciled with the dangerous implications of runaway consumption and unlimited development.
Above all we must get away from a speculative economy born of an irrational dependence on finance, which has becoming increasingly unstable as digital technology accelerates and financial transactions take place any objective review. We must return to a stable and long-term economy. In part that process concerns the restoration of regulation on the banking system but also the change must involve the very conception of finance and banking. Finance must be aimed at stable, long-term projects which have relevance for ordinary people.
Nothing could possibly be more helpful in this process than large scale projects to restore the environment and address the damage done to the climate by human activity. These projects are absolutely necessary for human survival and they will take decades, if not centuries, to complete. By grounding the economy in adaptation and mitigation, we can return to a predictable system in which green bonds in 30-50 year projects directly related to our well-being are dominant and we can escape from the flighty digital economy of thousands-per-second transactions.
In addition to the development of "green bonds" system for funding long-term meaningful projects to address the climate crisis, we should also consider the role of currency itself. We are engaged in a dangerous race to devalue currency around the world in the expectation of increasing advantage in trade. This activity is profoundly destabilizing for our economy and at a higher level also causes chaos in the process by which we assign value in general.
The solution to both the problem of currency and of climate change is obvious: we must hardwire the health of the ecosystem directly to the standard measurements of economic health so that the state of the environment is immediately visible in all economic transactions. Global finance, trade and investment must all be conducted within a system that makes the preservation of the climate, rather than profit, the highest priority.
One possible approach is the introduction of a global "eco-currency." The international community would establish an international currency, an "eco-currency," whose value is linked directly to the state of the climate (both globally and locally) and that currency would serve either as a universal currency within which international transactions take place, or it could be a factor that significantly impacts all the global currencies.
Such an eco-currency would require a calculation of the state of the environment on which its value would be based. First we need to come up with a system for evaluating the state of the environment in real time which could be converted into a set of figures for the calculation of the total state of the global and the local ecosystems. That set of figures would then be the basis for the eco-currency's value. Such a system would be complex and far from perfect, but it would be a massive improvement over the current factors employed in calculating gross domestic product which are limited to consumption and production and exclude the state of the environment entirely.
There exist indices such as Yale's Environmental Performance Index that do part of that process, but so far there is no total agreed on standard for evaluating the state of the total environment that could be used to periodically measure the state of the environment in a manner that could be employed as a universal reference. Only then could the amount of, or the value of, the eco-currency possessed by a nation reflect an objective evaluation of the health of the climate.
If the eco-currency were to serve as one of several factors impacting all global currencies, it might serve as an instrument akin to the SDR (special drawing rights) system currently employed by the International Monetary Fund. According to the IMF website, member [nations] with sufficiently strong external positions are designated by the Fund to buy SDR s with freely usable currencies up to certain amounts from members with weak external positions. In the case of the eco-currency, that strong external position could be redefined so as to consist primarily, or entirely, of environmental criterion.
The eco-currency could alternatively serve as a gold standard for all nations of the world, permitting each nation to increase its money supply in direct proportion to the environmental credits that it has accumulated through wise and effective policies by reducing emissions and preserving water and soil.
After all, in that the previous gold standard was based on a mineral that was exceptionally rare and valuable, so it could be a logical extension of that concept to argue that a healthy ecosystem is the most valuable commodity available. The ecosystem is far more valuable to human society than is gold. Each nation would continue to have sovereignty with regards to its own currency, but the calculation of each currency's exchange rate would take into account the environmental status of the country and its share of a calculated total of environmental credits for the entire world.
The serious problems faced by the European emissions trading system suggest that we need to move bravely to a new approach to putting the environment itself, and not merely carbon emissions, at the center of our calculations of the economy. An international currency program based on environmental credits as part of a total biosphere would make the environmental crisis visible in the financial world. The eco-currency could be the first step towards forcing those making fiscal and developmental policy at the national and international level to engage in a serious debate on the implications of their policies for the climate. No longer would it be possible to think separately about monetary policy and environmental policy; the two would be effectively yoked together.
The original version of this piece was posted at The Hangyoreh.