Options for Rebuilding the Economy and the Financial System

Abstract

This paper outlines four non-exclusive options for reforming the financial system. Three options are based on the re-introduction of cost carrying money supported by Gesell (1916), Fisher (1933) and Keynes (1936), but in electronic form. One variant is a government issue redeemable into official money as proposed by the US Bankhead-Pettengill Bill of 1933. A second option is to allow private issues redeemable into official money as occurred during the Great Depression in countries that included Germany, Austria and the US. The third option involves private currency issues convertible into specified commodities as occurred in Europe in the 1920’s. The tethering of a currency to the local value of Kilo-Watt-Hours of electricity generated from benign renewable energy resources is identified as a way to create “green” dollars. In this way a global unit of account could be created with a unit of value determined by the local endowment of benign sustainable energy resources. The investment cost per unit of output from renewable resources is typically around three times greater than burning carbon. This makes any compounding interest costs of renewable energy over three times that of carbon burning generators. One outcome of using cost carrying or negative interest rate money is to significantly improve the competitiveness of renewable energy to reduce the need for carbon taxing or trading. In addition, the value of green money tethered to the average cost of power from many generators in each bioregion would be relatively stable. Market prices in each region would become more predictable for investors and insulated from alien financial crises, speculators and terms of trade. The fourth option involves using existing fiat money to reduce: (i) the cost of seigniorage, (ii) interest on government debt; (iii) size of organisations considered too big to fail; (iv) tax incentives to favour equity rather than debt; (v) the different types of risks accepted by financial institutions, and (vi) ability of banks and “shadow” banks to create credit to finance derivatives many times greater than the GDP of the global economy.