Terra Islam by Bernard Lietaer

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This is a presentation by Bernard Lietear that was given to me by David Moosa Pidcock, the author of Another Road to Serfdom and Leader of Islamic Party of Britain. Getting a perspective for Sharia compliant Terra from the Creator and Designer of Euro is the most interesting fact. Lietaer explains the case and you might like to review this.

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Terra Islam by Bernard Lietaer

  1. 1. A Global Complementary Currency Compatible with Shari'ah? The Terra Mechanism Kuala Lumpur Stable and Just Global Monetary System Bernard A. Lietaer [email_address]
  2. 2. The Challenge <ul><li>Is it possible to create a global currency that is simultaneously: </li></ul><ul><ul><li>interest-free (i.e. compatible with Shari'ah) & globally convertible </li></ul></ul><ul><ul><li>Solving four key systemic problems of today’s international monetary system </li></ul></ul><ul><ul><ul><li>Monetary Instability => “87 countries have lived a monetary crisis in past 25 years” World Bank </li></ul></ul></ul><ul><ul><ul><li>Pro-cyclical money creation => Boom-Bust cycles </li></ul></ul></ul><ul><ul><ul><li>Blockage of development chances => Asian crisis 1998-99, Argentina, Brazil, etc. </li></ul></ul></ul><ul><ul><ul><li>“ Short-termism” => Sustainability problems </li></ul></ul></ul><ul><ul><li>Technically Efficient </li></ul></ul><ul><ul><ul><li>Cost-savings for international businesses compared to today </li></ul></ul></ul><ul><ul><ul><li>Adapted to Information Age Technologies </li></ul></ul></ul><ul><ul><ul><li>Capable of functioning within existing currency system </li></ul></ul></ul><ul><ul><li>Politically Realistic to implement </li></ul></ul><ul><ul><ul><li>Needs to be Win/Win for all key players => otherwise no chance </li></ul></ul></ul><ul><ul><ul><ul><li>USA </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Other Key countries (Europe, Japan, China, LDCs) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Multinational Corporations </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Banking system </li></ul></ul></ul></ul><ul><li>Short Answer: Yes </li></ul>
  3. 3. Plan for Complete Answer <ul><li>Proposed Solution </li></ul><ul><li>Verifying the four Criteria </li></ul><ul><ul><ul><li>Non interest & globally convertible </li></ul></ul></ul><ul><ul><ul><li>Solving Key Systemic Problems </li></ul></ul></ul><ul><ul><ul><li>Technically Efficient </li></ul></ul></ul><ul><ul><ul><li>Politically Realistic </li></ul></ul></ul><ul><li>Why Now? </li></ul><ul><li>Status of the Project </li></ul>
  4. 4. Proposed Mechanism <ul><li>Terra = reference currency defined as standardized barter unit backed by basket of key internationally traded commodities & services </li></ul><ul><ul><li>example: 100 Terra = 1 gold Dinar </li></ul></ul><ul><ul><li>+ 1 silver Dirham </li></ul></ul><ul><ul><li>+ 1 barrel of oil </li></ul></ul><ul><ul><ul><ul><ul><li>+ 30 liters of palm-oil </li></ul></ul></ul></ul></ul><ul><ul><li>+ 10 kg of rubber </li></ul></ul><ul><ul><li>+ 10 bushels of wheat </li></ul></ul><ul><ul><li>+ 20 kg of copper </li></ul></ul><ul><ul><li>… . </li></ul></ul><ul><ul><li>+ 100 Passenger-Miles (IATA units) </li></ul></ul><ul><ul><li>NB: any standardizable good or service could be included </li></ul></ul><ul><li>Terra Alliance issues Terra as inventory receipts for goods sold to it by producers. </li></ul><ul><li>Storage costs of basket is paid by the bearer of the Terra = demurrage of 3-4% per year) => pure medium of exchange, not store of value </li></ul><ul><li>Terras can be cashed in for $ but with 2% penalty => incentive to keep it in circulation </li></ul>
  5. 5. Proposed Mechanism Some Characteristics <ul><li>Terras are fully backed => very robust in any circumstances, including crises </li></ul><ul><ul><li>Not a Fiat currency </li></ul></ul><ul><li>Terras are electronic receipts primarily for international trade </li></ul><ul><ul><li>Not a paper currency </li></ul></ul><ul><li>Terra can be either a public or a private initiative </li></ul><ul><ul><li>In today’s geopolitical environment, easier private … </li></ul></ul><ul><li>Terra incorporates the Gold Dinar and silver Dirham in a broader basket </li></ul><ul><ul><li>By definition the basket more stable than any one of its components, including gold or silver in today’s environment </li></ul></ul><ul><ul><li>If the basket includes products or services that Malaysia produces itself => creates its own globally convertible currency </li></ul></ul>
  6. 6. Plan <ul><li>Proposed Solution </li></ul><ul><li>Verifying the four Criteria </li></ul><ul><ul><ul><li>No interest & globally convertible </li></ul></ul></ul><ul><ul><ul><li>Solving Key Systemic Problems </li></ul></ul></ul><ul><ul><ul><li>Technically Efficient </li></ul></ul></ul><ul><ul><ul><li>Politically Realistic </li></ul></ul></ul><ul><li>Why Now? </li></ul><ul><li>Status of the Project </li></ul>
  7. 7. Criteria # 1: No Interest + Globally Convertible <ul><li>No interest involved in creation or use of currency </li></ul><ul><li>Automatically convertible without new international treaty </li></ul><ul><ul><li>All components of the Terra (gold, oil, copper, etc.) are quoted and convertible today into all major currencies, so their combination as well </li></ul></ul><ul><ul><li>International barter well established legally, tax, reporting in all key countries. </li></ul></ul><ul><ul><ul><li>Volume of international barter (“countertrade” = trade without any currency) now over $1 Trillion per year (15% global trade), growing at 15%/year </li></ul></ul></ul><ul><ul><ul><li>No need for new laws nationally or internationally to deal with Terra transactions </li></ul></ul></ul><ul><ul><ul><li>No need to get approval of Central Banks or governments for acceptability </li></ul></ul></ul>
  8. 8. Criteria # 2 Solve some Key Systemic Problems with Today’s Money System <ul><li>Monetary Instabilities </li></ul><ul><ul><li>=> Terra mechanism provides a stable, inflation-proof, crash proof unit of value and exchange . </li></ul></ul><ul><li>Pro-cyclical Money Creation (see paper in “Proceedings”) </li></ul><ul><ul><li>Today’s money created as bank-debt => amplifies business cycle effects </li></ul></ul><ul><ul><ul><li>When boom => easy credit available </li></ul></ul></ul><ul><ul><ul><li>When bust => no credit available </li></ul></ul></ul><ul><ul><li>Terra creation is countercyclical </li></ul></ul><ul><ul><ul><li>in recession: more raw materials available => more Terra’s issued => more business activity stimulated </li></ul></ul></ul><ul><ul><ul><li>in boom: raw materials scarce => Terra’s cashed in for raw materials => reduces inflationary pressures in world economy </li></ul></ul></ul><ul><ul><ul><li>NB: IFO quantitative study on Terra impact on global economy… </li></ul></ul></ul><ul><li>Blockage of Development Chances </li></ul><ul><ul><li>Terra mechanism enables producers to create globally convertible currency </li></ul></ul><ul><ul><li>Ex:: Oil, palm-oil. producers in situation similar to gold producers in gold standard era . </li></ul></ul><ul><ul><li>(see Win/Win for Third World Producers later…) </li></ul></ul><ul><li>“ Short-termism” => Sustainability issues </li></ul><ul><ul><li>Connection with money system less known … </li></ul></ul>
  9. 9. Sustainability and the Terra Mechanism <ul><li>Terra has a demurrage charge attached to it: </li></ul><ul><ul><li>=> Creates for its users an incentive to look at the long-term… </li></ul></ul><ul><li>NB: This demurrage charge is not a new cost </li></ul><ul><ul><li>These storage costs exist today and are incorporated in any product’s price </li></ul></ul><ul><ul><li>Terra only segregates this cost, and gives it a new social use of motivating longer-term thinking </li></ul></ul>
  10. 10. 10 years $ 100 $ 1,000 100 years Currency with Interest @ 5%/year Value discounted to today: Currency with Demurrage @ 5%/year Demurrage = time-related charge Value discounted to today: $ 61.39 $7.60 $ 167.02 $ 168,903.82 Financial Viewpoint Sustainability: The Monetary Engine What do we invest in? Physical Reality (Tree Metaphor) Costs: 10 $ Costs: 10 $ <ul><li>Short-term thinking is not intrinsic to human nature, but created by today’s money system </li></ul><ul><li>NB: Historical Precedents: Dynastic Egypt, “Age of Cathedrals” </li></ul>
  11. 11. Plan <ul><li>Proposed Solution </li></ul><ul><li>Verifying the four Criteria </li></ul><ul><ul><ul><li>Non interest & globally convertible </li></ul></ul></ul><ul><ul><ul><li>Solving Key Systemic Problems </li></ul></ul></ul><ul><ul><ul><li>Technically Efficient </li></ul></ul></ul><ul><ul><ul><li>Politically Realistic </li></ul></ul></ul><ul><li>Why Now? </li></ul><ul><li>Status of the Project </li></ul>
  12. 12. Criteria #3: Technical Efficient <ul><li>Adapted to Information Age Technologies </li></ul><ul><ul><li>Terra are electronic receipts exchanged electronically via Internet </li></ul></ul><ul><ul><ul><li>no paper exchanges => Efficiency </li></ul></ul></ul><ul><li>Capable of functioning in parallel with existing money system </li></ul><ul><ul><li>Commodity markets function today within existing system </li></ul></ul><ul><ul><li>From a payment service viewpoint, Terra is simply an extra “foreign” currency => Banks provide account management, transfers, advice (See “Future of Payment Systems” Unisys) </li></ul></ul><ul><li>Efficiency for international businesses </li></ul><ul><ul><li>Reduces costs of hedging foreign exchange, and of adapting to business cycle fluctuations </li></ul></ul>
  13. 13. Criteria #4: Political Realism Win/Win Solution (1) <ul><li>Needs to be Win/Win for all key players, otherwise will be blocked… </li></ul><ul><li>USA </li></ul><ul><ul><li>Will do what US corporate campaign contributors decide </li></ul></ul><ul><ul><li>See advantages for corporations… </li></ul></ul><ul><li>Other Key countries: Europe, Japan </li></ul><ul><ul><li>Business cycle unemployment problems have become critical for both. </li></ul></ul><ul><ul><li>As raw material importers, Terra mechanism provides a stabilization mechanism </li></ul></ul><ul><ul><ul><li>Example: both areas require oil companies to store crude as buffer against Middle East uncertainties </li></ul></ul></ul><ul><ul><ul><ul><li>=> Terra makes such strategies a lot cheaper </li></ul></ul></ul></ul><ul><li>China </li></ul><ul><ul><li>Will be interested for geopolitical reasons </li></ul></ul><ul><li>Third World Producers (ex: Malaysia, OPEC, Latin America ) </li></ul><ul><ul><li>See next </li></ul></ul>
  14. 14. Third World Producers Terra issued directly to Producers Countercyclical Win/win solution (2) Third World Producers Wealth Creation by and in LDCs Scarcity of Hard Currencies Degradation of Terms of Trades Debts in hard FDI Currencies Commodity Production Problems Dumping Storage Costs IMF Adjustment Programs Poverty, Development Failure Worldbank Commercial banks “ Terra Bridge” Problems due to Monetary System
  15. 15. Win/win Solution (3) Benefits to the Banking Sector <ul><li>Today, banks don’t play any role in countertrade (up to 20% of global trade and growing at 15% per year) </li></ul><ul><ul><li>Standardization introduced by Terra enables financial sector to provide its traditional services similar to any foreign exchange transaction (accounts, transfers, advice) </li></ul></ul><ul><li>Terra is countercyclical => stabilizes world economy </li></ul><ul><ul><li>Makes job of Central Banks easier </li></ul></ul><ul><ul><li>Positive impact on banking portfolios </li></ul></ul>
  16. 16. Win/win Solution (4) Benefits for everybody <ul><li>Makes Sustainability a realistic global objective </li></ul><ul><li>In contrast with conventional money creation, Terra functions in countercycle with business cycle => reduces boom/bust cycles => less instability in jobs </li></ul><ul><li>Any Profits from Terra operations go to a non-profit Foundation aiming at sustainability in poorest areas </li></ul>
  17. 17. Plan <ul><li>Proposed Solution </li></ul><ul><li>Verifying the four Criteria </li></ul><ul><ul><ul><li>Non interest & globally convertible </li></ul></ul></ul><ul><ul><ul><li>Solving Key Systemic Problems </li></ul></ul></ul><ul><ul><ul><li>Technically Efficient </li></ul></ul></ul><ul><ul><ul><li>Politically Realistic </li></ul></ul></ul><ul><li>Why now? </li></ul><ul><li>Status of the Project </li></ul>
  18. 18. Why Now? <ul><li>Growing realization that current system unacceptable </li></ul><ul><ul><li>“ We need a new Global Currency” Paul Volcker (Conference Board Essay, 2000 ) </li></ul></ul><ul><ul><li>“ Today’s Monetary System is disfunctional” George Soros </li></ul></ul><ul><li>First time since 1930s that all three major world economies are stalling simultaneously </li></ul><ul><ul><li>=> Worldwide deflationary depression now likely </li></ul></ul><ul><ul><ul><li>Major problems coming for export-led economies (Korea, China, Malaysia, etc.) </li></ul></ul></ul><ul><ul><li>Terra is an ideal multilateral relaunch mechanism (see countercyclical) </li></ul></ul><ul><li>Terra win/win simultaneously for both ends of political spectrum </li></ul><ul><ul><li>Multinationals and Green movement </li></ul></ul><ul><ul><li>Corporations and Labor Unions </li></ul></ul><ul><ul><li>Third World and First World </li></ul></ul>
  19. 19. Status of Project just beginning… <ul><li>Seed Funding by two German and one Danish Foundations </li></ul><ul><li>Creation of a Terra Global Foundation, a US educational non-profit </li></ul><ul><li>Looking for Partners… </li></ul><ul><li>Starting a 5-Year Information Strategy </li></ul><ul><ul><li>“ The Future of Money” published in English, German, Japanese, Thai, Chinese, Dutch, Danish… (Malay publication rights available…) </li></ul></ul><ul><ul><li>“ The Future of Payment Systems” commissioned by Unisys for banking community </li></ul></ul><ul><ul><li>Asian Conference in planning for 2003 ( with “Asian Banker”) </li></ul></ul><ul><ul><li>New book for US market “Of Human Wealth” in preparation </li></ul></ul><ul><ul><li>Research project with IFO on world economic model with Terra </li></ul></ul><ul><ul><li>Three-part TV documentary ( co-production BBC, NHK, PBS) </li></ul></ul><ul><li>Terra Pilot Project </li></ul><ul><li>Implementation </li></ul>= done = ongoing now
  20. 20. Follow-up <ul><li>Books now available: </li></ul><ul><ul><li>English: “The Future of Money” ( www.amazon.co.uk ) </li></ul></ul><ul><ul><ul><li>Also now available in Dutch, Danish, soon Chinese, Thai, Czech, etc. </li></ul></ul></ul><ul><ul><li>German & Japanese : “Das Geld der Zukunft” </li></ul></ul><ul><li>“ Mysterium Geld” (Riemann Verlag) </li></ul><ul><ul><li>Youth book (13-17 years old): “Die Welt des Geldes” (Arena Verlag) </li></ul></ul><ul><ul><li>For banking sector “The Future of Payment Systems” (Unisys) </li></ul></ul><ul><li>Internet: </li></ul><ul><ul><li>English website: www.transaction.net/money </li></ul></ul><ul><ul><li>German website : www.futuremoney.de </li></ul></ul><ul><ul><li>Email: [email_address] </li></ul></ul>

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