Money and Sustainability – the Missing Link

According to Bernard Lietaer, by 2020, we will be faced with 2 major crisis:

  1. The Median Baby Boomers (born 1955) will retire at age 65 by 2020
  2. We need to come up with huge budgets to effectively combat Global Warming

When Baby Boomers retire, governments from around the world will need to find massive amounts of money to take care of them as promised. Levels of debt (with respect to GNP) will reach:

  • 300 % in Japan
  • 200 % UK
  • 150 % EU, US and most other developed countries

None of these numbers are viable and the Bank of International Settlement has predicted that these levels of elevated debt will push all affected countries to the brink of disaster. Even worse, these levels of debt are predicted to double by 2050.

On top of this, massive amounts of money are required to avoid catastrophic climate change. The current monetary system will not be able to meet these funding requirements. A complimentary monetary system, however can solve the problem.

Bernard Lietaer is an author, financial expert, and co-designer of the ECU (the monetary mechanism that later became the euro) and he is passionate about how economics is related to the many systemic failures we see today in financial collapse, inequity, ecological devastation and human devaluation. In his book Money and Sustainability, the Missing Link, Lietaer presents compelling arguments to show that there is a structural flaw in the current monetary system that generates the litany of current problems we face and repeated financial and monetary crises, including the eurozone crisis. The present system is fundamentally flawed and eoncourages ecological unsustainability, climate change and over-consumption.

The Report says monetary instability could be solved by creating complementary cooperative currency systems (generically called the ‘Civic’) to work in parallel with conventional bank-debt money, counterbalancing its negative effects. It outlines eight examples of cooperative currency systems that can address issues such as healthcare, education, climate change, and employment.

It acknowledges the current systems strengths: an ability to create an explosion of entrepreneurial and scientific innovation, but at the same time, it exposes its structural weaknesses. These instabilities can only be fixed by fundamental changes, not minor ones.  “It would be naïve to think that innovations are magic bullets to solve all our problems. We can no longer afford to overlook new currencies that could promote sustainability”, said Bernard Lietaer.

Lietaer describes how between 1970 and 2010, there were 145 banking crises, 208 monetary crises, and 72 sovereign debt crises – in other words a total of 425 systemic crises – an average of more than ten each year. The current Greek crisis is simply the last in a long line.

Read the online version of the book here

Click on the image to go to the online version of the book or click here.


Key Points  from the Executive Summary

Commenting on the Executive Summary to the report, Dennis Meadows, one of the original MIT scientists working on The Limits of Growth had this to say about Lietaer’s book:

I now understand, as proven clearly in this text, that the prevailing financial system is incompatible with sustainability in five ways:

  • it causes boom and bust cycles in the economy
  • it produces short-term thinking
  • it requires unending growth
  • it concentrates wealth
  • it destroys social capital

Any one of these is probably enough to derail the most carefully considered plan for a transition to sustainability. Together they are a prescription for disaster, which is precisely what they are giving us. The instability of the financial system should be enough to cause alarm, as the authors point out:
“According to the IMF, between 1970 and 2010 there were 145 banking crises,208 monetary crashes and 72 sovereign-debt crises-in other words, a staggering total of 425 systemic crises. An average of more than 10 per year! These crises have hit more than three-quarters of the 180 countries that are members of the IMF, many of them being hit several times.”
Informed observers of the 2008 crisis, by far the most serious so far, believe that the causes of instability have not been changed. Indeed many of them have grown worse. There will certainly be another global financial disaster.

Lietaer recommends creating complementary cooperative currency systems, the so-called ‘Civic’ to work in parallel with conventional bank-debt money, counterbalancing its negative effects. It outlines eight examples of cooperative currency systems that can address issues such as healthcare, education, climate change, and employment. They also suggest a solution to the current Greek/Eurozone crisis based on Greece creating just such a complementary urban or regional electronic currencies to run parallel to the euro which the country would retain for international business. The civic/euro exchange rate would be determined in the online market. Letaer’s suggestion are similiar to the Deutsche Bank’s proposal for the creation of the ‘Geuro’, a complementary Greek currency to help it restore an internal competitive economy.

Money and Sustainability provides:

  1. a devastating critique of traditional economic thinking
  2. an excellent discussion of the mechanisms through which money is created in modern society
  3. a description of the many problems we may expect from climate change and future collapses of the financial system
  4. proposals for nine different pragmatic monetary complements to the current financial system

The CIVIC complimentary monetary solution for the Eurozone  in a nutshell:

  • Greece continues to use the euro for all international business: tourism, shipping, exports
  • and imports, etc. Taxes are levied in euros on profits made in these activities, and used to
  • service the country’s national debt.
  • In addition, any Greek city/region wanting to participate can issue its own local currency
  • (generically called ‘Civics’ in the case study in chapter VIII). Civics are used to pay for
  • important local, social and environmental programmes. In our example, 1 Civic is issued to
  • anyone who completes 1 hour of approved service to the community. Projects for which
  • Civics are paid should be decided democratically and locally.
  • The issuing city/region requires payment from each household of, say, 10 Civics/quarter.
  • Households that have not earned enough Civics can use an online (eBay-style) market to
  • buy them with euros – or any other agreed good or service – from those that have earned
  • more than they need.
  • Civics exist only in electronic form, issued by the city/region, using mobile phones as a
  • payment mechanism (as happens in Indonesia, S. Africa and Kenya now). So Civics are 100%
  • traceable and their use is transparent.
  • A new type of non-profit organisation audits the validity of the Civics in circulation.
  • There is no fixed Civic:euro exchange rate. This is determined in the online market. To
  • increase the value of its Civic, a city simply requires more of them from each household. As
  • the local economy recovers, this number can be reduced, and could even drop back to zero
  • when full employment is reached.

This approach allows the Greek economy to retain the benefits of the euro, while the Civic helps each community solve its own social and environmental problems, while mobilising every household (with appropriate exceptions for disability, etc.) to participate. (A business-to-business currency called C3 – see chapter VII – could also inject working capital into small businesses and accelerate the recovery of mainstream jobs paid in euros. Similar approaches could be used in other European countries struggling with the consequences of current austerity programmes.

Bernard Lietaer, Christian Arnsperger, Sally Goerner, Stefan Brunnhuber – May, 2012

Examples of Private Initiative Solutions

Five examples of innovative private motivation systems are presented here. They can all work in parallel with conventional bank-debt money, use cost effective electronic media, and should be as transparent as possible to their users. By making these systems more self-policing, such transparency could go a long way towards reducing potential fraud. The systems are presented in order, starting with the easiest and least controversial and ending with the most complex and revolutionary. These can be started by either by NGOs or businesses. They are:

  1. Doraland: a system proposed for Lithuania, with the purpose of creating a ‘Learning Country’. In such a system everybody can volunteer to learn and/or teach, and be rewarded in Doras, a currency whose purpose is to help people realise their dreams. This would best be implemented by an NGO.
  2. Wellness Tokens: an NGO initiative working in cooperation with preventive health care providers to deal with issues even before they arise. Wellness Tokens reward and encourage healthy behaviours and thereby reduce longterm medical expenses for society.
  3. Natural Savings: a financial savings product that is fully backed by living trees. It would be a savings currency with infl ation protection superior to that of any national currency, while simultaneously providing an incentive to reforest areas and thereby creating long-term carbon sinks. Another of its qualities: it works well for micro-savings.
  4. C3: a Business-to-Business (B2B) system that reduces unemployment by providing working capital to small and medium-sized businesses. The network’s clearing currency would be fully backed by high-quality invoices and convertible into conventional money on demand. The insurance industry and banks both play critical and profi table roles in this system. C3s are working today in Brazil and Uruguay, and the latter country accepts C3s in payment of all taxes.
  5. TRC: the Trade Reference Currency is a global B2B currency proposal that would make it profitable for multinational companies to think long-term, thereby resolving the conflict between short-term financial corporate priorities and long-term social and environmental needs. It would be an inflation-proof and crash-proof global currency fully backed by a basket of commodities and services relevant to the global economy. The TRC would be a global currency distinct from any existing national currency, thus reducing the risk of geopolitical tensions around monetary zones of influence.

Examples of Government Initiative Solutions

These 4 examples can be started at started at a city, regional or country level:

  1. Torekes: a city-based initiative to encourage volunteering while promoting green behaviour and social cohesion in a poor neighbourhood. It has been running since 2010 in the city of Ghent, Belgium.
  2. Biwa Kippu: a proposal for the Biwa Prefecture in Japan to fund the labour components of the ecological restoration and maintenance of Lake Biwa, the oldest and largest lake in Japan. It could be either voluntary or obligatory for households in the area.
  3. Civics: a proposal empowering a city or region to fund civic activities without burdening their budgets. These activities could provide the labour component for social, educational and/or ecological projects. Such a system could also take the form of a compulsory contribution.
  4. ECOs: a national or Europe-wide system making it possible to fund critical components of large-scale ecological projects, such as climate change prevention and adaptation projects. It would be an interest-free currency issued by governments. Governments would require businesses to make a contribution proportional to their total sales, payable only in ECOs. This is the most controversial of the nine proposals, because it would be seen as a new type of corporate tax on the largest corporations. Such an initiative may require governments to ‘declare war’ on run-away climate change.

Not all nine systems – five private and four public – have to be implemented before the benefits of different monetary ecosystems start to become visible. Each community, city, region or country can pick and choose which kinds of system it implements. Together with a dozen other designs already in operation around the world, each combination of new exchange media would give an appropriate monetary ecosystem a chance to emerge. Some of these systems will fail. However, just like in a forest, the most successful types will spontaneously tend to spread. We still have much to learn, particularly about which governance structures are most appropriate for each type of system.