Obama's NEW FOUNDATION philosophy to be applied to domestic and international monetary matters 

The Obama Administration has been promoting the phrase of New Foundation as a summary of its governance approach in both domestic and international policies. Having just listened to his Cairo speech to the Muslim and Arab world I sensed that he was engaged in developing the principles or foundation for clear, principled, transparent policies in that part of the world.

I would like the Obama Administration to do the same for the domestic and international monetary systems that are the glue of financial and monetary systems.

The first step is to promote a national debate on this monetary part of the financial and economic crisis that America has inflicted on the world.

I suggest that at least three elements of that discussion are money creation, complementary currencies and a non-national international reserve currency.

It is encouraging that Ellen Brown’s idea of removing the money creation function away from privately owned banks to the public sector has received such strong response: among the 700 responses only about one hundred were negative. My comment is that we have to take this one step further and consider the whole US and international monetary system.

Complimentary currencies as proposed in the idea of natural money have a strong track record in monetary history. If FDR had allowed them to work in full bloom the Great Depression could be been shortened by many years.

As argued in my first submitted idea in this Open Government Dialogue about a carbon-based international reserve currency, a non-national international reserve currency is needed for international stability in monetary, financial, economic systems. This is a strong recommendation by the UN GA President's Commission on Monetary and Financial Crises which will be part of the UN Conference on Development and Finance on 24-24 June. I have been submitting to them the proposed Tierra international reserve currency in order to base that new reserve currency on the price of avoided carbon emissions. Adopting this carbon reduction would help all nations to deal with the financing of development and climate mitigation and adaptation measures. If the Obama Administration and China, the two greatest carbon producers, would work together by finding their common monetary ground, the international monetary system would be transformed.
Why is this idea important?

Let the proposed international reserve currency be based upon the carbon standard! 

The UN General Assembly President's Commission on Monetary and Financial Crises with its chair professor Stiglitz from Columbia University has proposed a new international reserve currency in its March 19 report. China and the other BRIC countries have been clamoring for a “supra-sovereign reserve currency” which would replace the dollar, euro and yen. It would probably be based upon a basket of currencies and be like the Special Drawing Rights (SDRs) that the IMF is managing.

Let the Obama Administration apply its New Foundation philosophy to the international monetary system and initiate the discussion about the US New Monetary Foundation by discussing this carbon-based international reserve currency, called the Tierra, that could be a major means to combat the climate crisis. In that discussion could also to be included earlier monetary ideas on this site, i.e. natural money, returning the money creation function to the public sector away from the privately owned banks and federal reserve.

Let me list the advantages and disadvantages for the US of keeping the dollar as the international reserve currency and also for those countries in the South who are forced to buy US securities at very low interest rates. Let me then list the benefits and costs of having the Tierra international reserve currency become the international reserve currency upon which each country can set the parity of their currency. For more information, see www.timun.net.

NOTE THAT THIS IS THE MOMENT OF OPPORTUNITY FOR MONETARY AND ECONOMIC TRANSFORMATION: THE FATAL FLAWS OF THE PRESENT MONETARY, FINANCIAL, ECONOMIC SYSTEMS ARE IN FULL VIEW IN THIS RECESSION WHILE AT THE SAME TIME THE WORLD FACES THE ENORMOUS CHALLENGES OF THE CLIMATE CRISIS AND PEAK OIL. THE WORLD CANNOT AFFORD A REPEAT OF THIS GLOBAL RECESSION AND TO IGNORE THE REAL CRISES THAT ARE AWAITING US!

There are advantages and disadvantages to the US of maintaining the dollar as a reserve currency.
Advantages for the reserve currency issuing countries.

• Seignorage: the reserve currency country can have an over-evaluated currency with which it can buy up other countries’ assets. De Gaulle in the sixties resented American businesses buying up French industry on the cheap, exploiting their privileged position of seignorage. (Historically, seignorage made the king debase its currency by setting the value of its coin higher than the value of precious metals of which it was made. The term itself derives from the alleged feudal custom that the lord of the manor could have first dips on bedding the girls of their wedding nights.)
• short-term gains by having other nations pay low interest on raising of money for payment of budget deficits or war operations.
• Saving of millions of dollars by not needing to go to other sources of borrowing and printing more money of its own currency
• International standing by having its currency accepted as a seal of approval of the strength of one’s economy.

Disadvantages for reserve currency issuing countries:
• Contributes to instability of international monetary system because national currencies fluctuate in value, thus upsetting the international trade system. Inflation of the US dollar makes oil prices go higher and terms of trade worsen for other commodity exporters.
• Creates unfair disadvantage by being able to borrow money not for a certain interest rate costs as other nations have to do. It has been calculated that this foregoing of paying interest has resulted in billions of dollars.
• Cannot adjust exchange rates without upsetting other nations’ monetary systems that use the dollar as benchmark, this contributing to unstable financial conditions.
• Constitutes the so-called Triffin Dilemma, i.e. the issuing countries of reserve currencies cannot maintain the value of the reserve currencies while providing liquidity to the world, leading to global inflation or lack of global liquidity.
• Contributes to recurrent crises in Asia, Latin America and Eastern Europe
• Leads to chronic and growing US payments deficits (with their associated deflationary impact)
• Leads to global crisis when the reserve currency country’s financial sector is in crisis as it is happening in 2008-10.
• Globalization demands a global approach which involves some ceasing of national financial sovereignty; not doing this leads to problems for all.


There are also advantages and disadvantages for those nations that use a reserve currency such as the US dollar

Advantages for nations in the South:
• access to foreign exchange assets in the face on the absence of global reserve currency
• stable exchange rate, as long as the reserve currency does suffer from inflation or appreciation
Disadvantages for the nations in the South:
• nations in the global South have to spend scare national financial resources to purchase dollars for which they get only a very low interest rate payments. In the meantime they have to forego the opportunity costs of these local funds in building a strong economy locally.
• such parking of a valuable funds at the IMF could be avoided if the nations got together to make SDRs wider available, and, in last instance, to establish a democratic World Central Bank where all nations have voice and representation.

Benefits of carbon-based international reserve currency :
• It uses the ecological and financial indebtedness of countries in the global North and South as the background to combat the climate crisis.
• It provides an institutional mechanism for the funding of development and climate mitigation and adjustment measures.
• It increases equity, sustainability and stability in the monetary system by removing nation- and credit-based reserve currencies
• It increases energy efficiency by having to pay down one’s ecological debt in the global North and by receiving more Tierras in the global South
• It would provide an opportunity to re-evaluate life styles where being more is considered more essential than having more

Costs:
• Emotional costs of transformation
• Costs for educating for this transformation
• Upfront costs with long-term benefits