Margrit kennedy if money rules the world - who rules money


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Margrit kennedy if money rules the world - who rules money

  1. 1. Green Money If money rules the world – who rules money? A case for complementary currencies In the late seventies, environmental- as such, it is difficult to replace. The of interest and all its associated ists – among whom I count myself problematic side, which is rarely dis- problems? Therefore, it is useful to – were among the first to question cussed, is that interest also creates an understand three – out of at least the present money system, which – in impetus for exponential growth. What thirty –misconceptions about money, order to function – requires exponen- we call ‘interest’ not only contains the which almost everybody holds. tial growth returns that the planet cost of the work of the bank, a risk could never sustain. We discovered premium and an inflationary adjust- Three misconceptions that there was a severe lack of un- ment, for example costs, which can- derstanding on the most basic facts not be eliminated, but also contains 1. The ‘Growth Misconception’ is based about money amongst laymen as well the so-called ‘liquidity premium’. This on the belief that money based on as professional economists. Up to this is the reward for the lender who lends interest can grow forever – and this day, it remains almost taboo among his money to others. Money owners in turn is based on people not un- economists, bankers and politicians have the ability to hold money back derstanding two generically different to discuss it publicly, as if the global until the ‘price is right’ as it produces types of growth. monetary system was a fundamental almost no storage costs like all other given. However, nothing could be goods. Money – in its present form – Curve a) represents the normal physi- further from the truth. therefore not only provides a key, but cal growth pattern in nature in which also a lock to the market. everything stops growing at an opti- I first discovered that there is a ba- mal size. This is the only sustainable sic antinomy between ecology and This possibility for the retention of growth pattern that exists. economy due to a well-hidden prob- money tends to distort all market Curve b) represents exponential lem in our money system. I started mechanisms, and over time, money growth doubling its units at regular to find practical solutions, which are – and not the provision of goods and intervals. It may be described as the demonstrating how we can finally services – becomes the prime focus exact opposite to curve a), in that it free ourselves from being ruled by our of all economic activities. Foreseeing grows slowly in the beginning, then money system – to ruling it. this in 1936, Keynes wrote: “Specula- accelerates continually faster and, tors may do no harm as bubbles on a finally, grows in an almost The hidden problem: steady stream of enterprise. But the vertical fashion. Based on compound interest position is serious when enterprise interest and compound becomes the bubble on a whirlpool interest, our money follows Money – as one of the most ingenious of speculation. When the capital de- an exponential growth inventions of humankind – facilitates velopment of a country becomes a by- pattern: at 3 percent com- the exchange of goods and services product of the activities of a casino, and, thereby, overcomes the limita- the job is likely to be ill-done.” tions of barter. It creates the possibil- We now live in a time in which the ity of specialisation as the basis of capital development of the world civilisation. Taking a more detailed seems to have become a by-product view leads us to a problem that has of the activities of a casino. been ignored for a long time: the Therefore, the question aris- availability of money – based on the es: How can we create payment of interest – has two sides. a money system, which The useful side most people under- avoids the compounding stand immediately sees interest as the price for money, which functions as an indicator for the scarcity of products or money in our economies – and66 forum CSR international
  2. 2. Green Money pound interest it doubles in 24 years; a closer look, there are indeed huge that undermines any democracy over at 6 percent it takes 12 years; at 12 differences as to who profits from and time. An Argentinian banker, who had percent 6 years. who pays in this system. Comparing worked in the National Central Bank the average interest payments and in- for 36 years, once asked me – in re- To show the impact on money in the come from interest in ten equal parts gard to this figure: “…and what use is long run, we may use the famous of 2.5 million households in Germany, equality before the law for us without example of Josephs’ cent invested we can show that 80 percent of the equality before the money?” at 5 percent interest in the year 0. population pays almost twice as much In the year 2000 this cent would be as they receive, 10 percent receive Even more to the point, President worth over 500 billion balls of gold slightly more than they pay, and the Obasonjo of Nigeria stated after the of the weight of the earth, at the remaining 10 percent receive more G8 summit in Okinawa in 2000: “All price of gold in that year. Without than twice as much interest as they that we borrowed up to 1985 or 1986 the compounding of interest, the pay. This last amount is the share that was about $5 billion. So far we have sum accumulated would have been the first 80 percent loses. paid back about $16 billion. Yet we’re 1,01 Euro. This illustrates one of the least under- being told that we still owe about $28 This shows that it is not interest that stood reasons why the rich get richer billion … because of foreign creditors’ is the problem, but the compound- and the poor get poorer – and that interest rates. If you ask me what is ing of interest. Through the use of the economists’ notion that money the worst thing in the world, I will say the ‘discounted cash flow’, however, is just a neutral veil for the economy it is compound interest.” At that time, interest and compound interest pro- is incorrect. the developing world was spending vide the basis for all evaluations of thirteen dollars on debt repayment for economic efficiency for investments In Germany, in the year 2004, about every one dollar it received in foreign in conventional currencies. 1 billion Euro were transferred every aid and grants. day from those who work for their 2. The ‘Transparency Misconception’ money to those who can make their Many believe that those 10 percent deals with the second major difficulty ‘money work for them’. But money who profit from the system are the in fully understanding the impact of never ‘works’. Only people and ma- culprits who will not allow fundamen- the interest mechanism on our eco- chines produce real value. Money can tal change to take place. However, nomic system. Most people think that only be re-distributed from those who even the rich are just as helpless to they pay interest only if they borrow create that value to those who own change it as the poor. The late bil- money. They do not understand the money. In other words, we allow the lionaire Sir James Goldsmith once fact that every price contains a certain operation of a hidden redistribution said: “What use is more money to me amount of interest, depending on the mechanism in our monetary system, when I will be surrounded by more share of capital deployed per unit of which continually transfers money and more poor and suffering people output. This relationship – together from the large majority to a small who hate me? I feel as if I have won a with the rate of interest – determines minority, creating a social polarisation game of poker on the Titanic!” the interest component in prices. For the three following examples from Germany, it ranges from a 12 percent Growth interest component in the price for a) Natural / logistic growth garbage collection (because here the b) Linear growth share of capital costs is relatively low c) Exponential growth and the share of physical labour is particularly high) to 38 percent for drinking water – and up to 77 percent in the rent for public housing (when calculated over 100 years, which is the estimated time houses in Germany are supposed to last). On average, people in Germany pay about 45% interest in the prices of goods and services they need for their life. 3. The ‘Fairness Misconception’ is based on the notion that everyone is treated equally in our monetary sys- tem. We all have to pay interest when borrowing money and receive interest Time for savings. However, when we 67
  3. 3. Green Money Two Results tern in our money system. In contrast from the Christian community and to measures like the meter or the Christian funerals. Money was kept Out of the many devastating results, kilogram, we are used to the fact that in circulation by regularly re-calling due to this well-hidden mistake in our the exchange rate of our currencies and re-minting the thin metal coins money system, two are particularly varies almost daily. Cashing in on this – in some areas called Brakteaten noteworthy: inflation and monetary variability, the global volume of specu- – every three to four years and by instability. lative foreign currency transactions levying a fee of 30 to 40 percent in between 1974 and 2004 increased to the renewal process. This was – at 1. Inflation: Between 1950 and 2001 97 percent, with a mere 3 percent of the same time – a way of collecting every Deutsche Mark lost 80 percent the transactions serving the exchange taxes. The use of the old coins was of its value – and this was the most of goods and services including tour- forbidden by law and sanctioned stable currency in the world. For most ism. Recent figures in 2007 show that by prison sentences. This time people, inflation seems like an integral the daily volume of trading already related charge on money – called part of any money system – almost exceeded $3.200 billion – whereas in ‘demurrage’ – acted as a ‘circula- ‘natural’ – since there is no country in the 1970s it amounted to just $20 to tion incentive’ and meant that the world without inflation. Because 30 billion. Thus, economic instability is nobody was able to hoard money it is perceived as a given, economists created on a global scale. After specu- without risking a loss. Instead of and most people believe interest is lative money flowed massively into charging interest, people usually needed to counteract inflation, while Thailand, Malaysia and Korea in the accepted loans that guaranteed in fact interest is the major cause of early 1990s – only to be withdrawn a the equivalent value after some inflation. The creation of money is few weeks later – it left the most dev- months or years – and thus they carried out via bank loans. Whoever astating effects – not unlike war – on eliminated the ‘liquidity premium’, receives these loans has to repay them the culture, ecology and society. or reward for the lender, which with interest and compound interest. causes the compounding of inter- If we consider the world economy, it Three historical solutions est. In terms of modern banking follows that the amount of money practices, leaving out this share in in circulation is systematically insuf- The religious leaders of Judaism, Islam the cost of interest would halve the ficient to repay all debt. Leaving aside and Christianity understood the prob- costs for loans and subsequently – temporary contractions, it is only lems of compounding interest and left over time – the 45 percent share of by a continuous expansion of the us solutions how to deal with it: interest in prices. money supply that economic actors • In Islam people who follow the as a whole can sustain their ability Sharia observe a complex set of All three historic solutions have to pay. rules to prevent interest from remained alive up to this day: The compounding. It forbids not only Islamic model is finding more and So where is exponential growth actu- investments in morally or socially more acceptance among the Muslim ally taking place? The asset markets prohibitive activities, but also population in view of the failure of hold the answer. It is in the number speculation and excessive costs of the capitalist money system to provide of assets and in the asset evalua- loans and, consequently, makes for systemic stability and fairness. The tions – and this is especially true for the moneylenders – whether pri- Jewish model of waiving the debts the securities market that has grown vate or professional – a part of the has been advocated to counteract exponentially over the past decades. project, which they are financing. the capitalist money systems’ inability However, unless this rise corresponds Therefore, they have a strong sense to deal with social justice – in terms with a comparable rise in the produc- of responsibility for its continuity of the waiving the outstanding loans ing economy their surge is excessive. and success. of the least developed countries. These overvalued assets serve as • Judaism used to resolve the problem And many of the complementary backing for creating loans. But – if of compounding interest by waiving currencies now running in Germany the backing is getting weaker – how all debt regularly every seven years are using demurrage as a circulation is the money not supposed to lose in the so-called “jubilee year”. After incentive. solidity? In a monetary system with seven times seven or 49 years, not compound interest, inflation cannot only debts were ‘for-given’ and Where these solutions have not been be prevented. At best, it can be kept debt-slaves were freed, but also applied, three historic consequences at low levels for a number of decades. private land was given back to the have arisen: hyperinflation (or crash), Ultimately, a correction – that means community. social revolution and war. However, a massive and painful adjustment – is • The Christian churches in Europe, neither the 87 monetary crashes over inevitable. We see the beginnings of mainly during the Middle Ages be- the last 25 years, nor World Wars I this process right now. tween 900 and 1400 AD, imposed or II, nor social revolutions like the strict interest prohibition laws. They French, Russian or Chinese, have 2. Monetary instability is a second punished those who levied interest changed anything fundamentally in result of the exponential growth pat- on loans severely, excluding them terms of the money system.68 forum CSR international
  4. 4. Green Money Complementary currencies and products (insurance against monetary currencies, in parallel with them, and the use of demurrage instabilities) constitute significant would be an inflation-resistant cur- profit centres. rency, ideal to track results over long- A new way to tackle the interest prob- The solution he advocates is what the time periods or across countries. Like lem has emerged in Europe – mainly International Air Transport Associa- most complementary currencies the Germany – during the last decades. In tion (IATA) successfully did 25 years Terra would be counter-cyclical to the addition to the many local exchange ago through an internal currency ar- conventional money creation proc- and trading systems, twenty-eight rangement among its members, for ess, thereby stimulating the world regional complementary currency example to create an independent economy in downturns and cooling it systems have emerged, most of them global Trade Reference Currency (TRC) off in boom periods. Last but not least, based on demurrage. Complementary useable across industries, designed the demurrage feature would realign currencies may be defined as means to provide an inflation-resistant in- financial interest with long-term think- of payment with a built-in target. They ternational standard of value, to sta- ing, thereby resolving the conflict are not meant to replace the existing bilise the business cycle, and realign between shareholders’ optimisation national or international currencies, stockholder’s interests with long-term and long-term sustainability. but to complement them. Mainly in sustainability. social, cultural and ecological areas The so-called ‘Terra’ would be backed Conclusions in which the present system does by a standard basket of the most not work very well, new liquidity can important commodities and services The solutions for financial stability, be created without burdening the traded in the global market (for ex- presented here, will be a surprise taxpayer or governments with ad- ample oil, wheat, copper, gold and for conventional economic thinking, ditional costs. They can be seen as a other assets, and some standardizable which invariably assumes monopolies powerful tool for strengthening the services like carbon emission rights, for national currencies as an un- economic viability of a specific social international freight or telecommuni- questionable given. The examples sector or geographically limited area. cation units). A ‘Terra Alliance’ would mentioned show that monetary Models of complementary currencies issue electronic inventory receipts for sustainability will be enhanced by a exist on all levels of economic activ- commodities sold to it by producers. It diversity of currency systems, so that ity: the international (www.terratrc. could include both governmental and multiple and more diverse channels org), the national (, the private sector actors who represent of monetary links and exchanges can regional (, and the main producers or users of the emerge. We have all the technologies the local level ( components in the basket. to make the use of multiple curren- Most interesting for the international The bearer of the Terra would pay cies feasible. While – at the moment business community – at the moment the cost of storage of the physical – they are proving their capacity to – seems to me the Terra TRC. commodities (estimated at 3.5 to 4 play a stabilising role on a small scale, percent per annum), which makes it is urgent to recognise that they can The Terra TRC – a global “Trade the Terra a ‘demurrage’ currency and contribute to sustaining the global Reference Currency” encourages its use as a contractual, economic system tomorrow, if we are planning and trading device, not as able to implement them on the scale Some years ago Bernard Lietaer, an a store of value. The benefits of the necessary to make a difference. internationally renowned monetary Terra compared to conventional mon- expert, began to envisage a global ey include not only the resolution of Prof. Dr. Margrit Kennedy monetary system that goes beyond the three issues identified above, but the simple dollar domination of the also the creation of an ideal standard past sixty years. He saw that three of international value, given that its unresolved issues are haunting the basket would capture main elements global monetary scene. Firstly, there of global trade. By the very definition is no international standard of value of a basket, it would be more stable – a critical function of any money than any component of the basket system. Since the floating exchanges (such as gold), and it would also be a of the 1970s, the US Dollar has robust standard, given that it is a fully stopped playing that role, and no backed currency. other currency has been able to fill in As any Terra trade is basically stand- that gap. Secondly, currency instabil- ardised counter-trade (international ity persists. According to the World barter), it doesn’t require new legal Bank, 87 countries have experienced agreements. Counter-trade is routinely monetary crises in the past 25 years. practiced today in over 100 countries, And thirdly, institutional deadlock: with a volume of more than $1 trillion The banking system is not pushing for per year. The Terra would operate as a monetary reforms because “hedging” complement to conventional national 69