Abstract
This paper contends that carving out pathways to finance the sustainable development goal (SDG) agenda entails to reconsider tacit assumptions regarding the functioning of financial systems. We first use a history of economic thought perspective to demonstrate the flaws of the loanable fund theory, which has come to underlie SDG finance strategies. We then introduce the alternative endogenous money theory using a consistent theoretical and accounting framework. This allows us to identify and discuss a set of financing mechanisms that would permit to bridge the SDG budget gap. These mechanisms include the issuing of sovereign green bonds, the modification of the European Central Bank’s collateral framework, changes in capital adequacy ratios, a market of SDG lending certificates and the introduction of rediscounting policies. We back up the discussion with examples from economic history.
Highlights
According to an SDSN report (2018), the sustainable development goal (SDG) agenda—which was adopted by all 193 UN Member States on 25 September 2015—would require a global annual capital expenditure comprised between USD 5 and 7 trillion
The fifth section uses endogenous money theory as a grid to discuss a set of simple financial mechanisms, which would allow for a quick release of the amount of finance required for SDG-related transformative investments
These mechanisms—which are by no means exhaustive—include the issuing of sovereign green bonds, and the greening of money creation by banks through a modification of the European Central Bank’s collateral framework, changes in capital adequacy ratios, SDG lending certificates and rediscounting policies
Summary
According to an SDSN report (2018), the sustainable development goal (SDG) agenda—which was adopted by all 193 UN Member States on 25 September 2015—would require a global annual capital expenditure comprised between USD 5 and 7 trillion. The fifth section uses endogenous money theory as a grid to discuss a set of simple financial mechanisms, which would allow for a quick release of the amount of finance required for SDG-related transformative investments. These mechanisms—which are by no means exhaustive—include the issuing of sovereign green bonds, and the greening of money creation by banks through a modification of the European Central Bank’s collateral framework, changes in capital adequacy ratios, SDG lending certificates and rediscounting policies.
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