Evaluation of Sustainable Energy Dollars

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This section extends the evaluation of energy dollars developed by Turnbull (1997a) to include national currencies. Most types of money used throughout history have been connected with reality by being redeemable into physical assets such as gold, silver, copper, tea, tobacco, rum, wampum shells, wheat, corn, cattle, slaves and even wives (Galbraith 1976). Modern money is no longer related to reality since President Nixon took the US dollar off the gold standard in 1971 (Galbraith 1976).

Modern currencies are described as 'fiat' money as they are defined to exist by the force of law (Greenspan 1997) . The monetary tokens issued by governments in the form of notes and coins are given a face value not related in any way to the material used in the token or paper money that may have negligible intrinsic value. Monetary tokens typically represent less than 5% in value of all the money in modern societies. Most money is represented by bank deposits and other credits. The value of fiat money in the form of tokens, deposits and other credits is not defined by any specific goods or services but by the totality of all items traded and invested in one national currency compared with the totality of all transactions in other national currencies. This means the value of modern money is indefinable in terms of any one or defined combination of goods and/or services.

As modern money is not redeemable into any specified goods or services, there is no limit on how much is created (Greenspan 1997) . Monetary tokens, such as notes and coins, are produced by governments to generate a profit, referred to as 'Seigniorage ', which is the difference between the cost of manufacturing paper money and coins and their face value. The rest of the money supply is created by private banks who earn 'special profits' from creating money in the form of credit.

As Galbraith (1976) observed: 'The process by which banks create money is so simple the mind is repelled. With something so important, a deeper mystery seems only decent.' Banks create money by issuing loans to borrowers who deposit the funds back with the bank. In this way banks create both an asset and a liability on their balance sheet simultaneously. The loan is recorded as an asset of the bank with the deposit by the borrower becoming a matching liability of the bank. When the deposit is drawn down, to be spent on the purchase of goods and services, deposits are placed back in the bank by the vendors of the goods and services. If the vendor deposits are at other banks then the money can be lent back to the bank that created the money. The creation of money in this way allows banks also to create ' special profits' from the difference between the interest charged on the loan and the interest they may pay on the deposits also created. For non-religious folk the creation of modern money is the second biggest confidence trick perpetuated in the history of civilization.

If the banks creating money are outside an urban precinct then they will drain value away to external regions. According to Huber and Robertson (2000) the value of the special profits earned by US private banks in 1998 was US$114 billion and £48 billion in the UK. These authors reported that this would have represented respectively 4.5% and 15% of central government tax revenue in each country!

Modern money carries out the role of being a 'medium' of exchange and a 'store of value' but it no longer carries out its historical role in providing a physically definable ' unit of value' like a pound weight of sterling silver or a defined weight of gold. In earlier centuries money was defined in terms of specific commodities as noted earlier. There was no need for a government to get involved in creating or defining the value of money or what could be used as money. It was an era of highly decentralized and mostly non-government controlled 'Free Banking' (White 1993) . However, the need for governments to raise money resulted in decentralized banking being replaced by central banking which is a form of central planning.

A problem in using commodities to define units of value is that the characteristic of the commodity has also to be defined and measured. The purity of metal commodities can be more easily defined, measured and maintained than the characteristics of tea, tobacco or cattle and so on. By using a kilowatt-hour of energy as a unit of value the definitional and management problem can be overcome as energy can be measured as precisely as required. In this way energy dollars provide advantages not available in modern forms of money- or commodity-based currencies.

Table 5.2 provides a number of other criteria for comparison. No quality testing is required for national currencies as quality is not defined as noted in row 2 of the table. Tokens of fiat money have negligible intrinsic value while gold can be used in industry to some degree as suggested in row 3 of the table. Another special feature of energy dollars is that they have an intrinsic consumable value that is little shared by gold and not at all with fiat money as indicated in row 4.

The definition of what is considered national currency is determined by governments, as noted in row 5. The sources for gold are globally distributed in limited and far-flung pockets, while, as noted earlier, renewable energy is globally available. With a gold-backed currency, countries that are well endowed with gold obtain an international competitive advantage. Row 6 recognizes that renewable energy currencies are democratic, being available around the world. As noted in closely related rows 7, 8 and 9, the volume of national currencies made available is typically controlled indirectly by interest rate and fiscal policies but some government may also introduce direct controls as noted in row 9 of the table. The availability of gold to back a currency in an economy can very much depend upon external factors as noted in the table. The amount of power made available is closely related to consumer demand so the volume of renewable energy currencies can become automatically related to the level of economic activity or GDP. However, not shown in the table, the volume of gold and energy currencies could also be controlled by political interventions.

The use of a physical commodity like gold as the unit of value or ' reserve ' currency introduces storage and insurance costs as noted in rows 10 and 11. These costs are avoided with the national currencies and renewable energy dollars. This does not mean that some storage devices are not required for some forms of renewable energy services. Both gold and energy suffer costs in being moved as noted in row 12. While the cost of transporting gold is relatively minor the cost of distributing energy across a nation can be very significant and can rise to over 30% of power generated. However, this cost is an advantage as it provides the incentive for urban precincts to become self-sufficient to promote their financial and political independence.

Table 5.2. Comparison of National currencies with gold and renewable energy dollars.

No.

Criteria for comparison

National dollars

Gold dollars

Energy dollars

1

Unit of value

Not defined

Ounces / grams

Kilowatt-hours

2

Quality testing

Not required

Density

Not required

3

Intrinsic value

Negligible

Say 10%

100%

4

Subjective value

100%

Say 90%

Nil

5

Source of currency

Government decree

Haphazard locations

Globally

6

Democratic

Depends on Gov.

Depends on location

Globally

availability

7

Changes in

Controls & interest

Little related to

Related to consumption/

production of money

rates

consumption/GDP

GDP

8

Volume of money

Indirectly by interest

Geography, trade and

Related economic value/

controlled

rates

government

GDP

9

Rate of change in

Fiscal and monetary

Fluctuates with region

Relatively stable by

production of money

policies

and time

region and in time

10

Cost of storage

Not required

1% of value per year

Not required

11

Cost of insurance

Not required

1% of value per year

Not required

12

Cost of distributing

Negligible with

Changes little with

Increases with distance

reserve currency

electronic transfers

distance

13

Ecological features

None

Yes

Yes

Both gold and renewable energy depend upon nature while national currencies are not connected to nature in any way as indicated in row 13. Indeed, the ability of modern money to increase its value from earning interest over time is inconsistent with natural processes and is not sustainable.

The importance of having an ecological local currency connected to environmental conditions can be profound. The nature of a currency determines how resources are priced and markets allocate resources according to prices. To sustain humanity on the planet it is the environment that should influence how resources are allocated and governed. In other words society needs to become an 'environmental republic' with feedback mechanisms to allow it to be automatically controlled by nature. This cannot occur with modern currencies that are controlled by governments and their monetary institutions in order to maintain political power, a problem exacerbated by the current type of money that creates compelling short-term political incentives to exploit nature through its ability to earn interest.

The importance of having a local currency to allocate resources was highlighted by Jacobs (1985b) who stated that 'Because currency feedback information is so potent, and because so often the information is not what governments want to hear, nations go to extravagant lengths to try and block off or resist the information.'Jacobs (1985c) went on to explain:

Individual city currencies indeed serve as an elegant feedback control because they trigger specifically appropriate corrections to specific responding mechanisms. This is a built-in design advantage that many cities of the past had but which almost none have now. Singapore and Hong Kong, which are oddities today, have their own currencies and so they possess this built-in advantage.

As outlined in Table 5.2 renewable energy dollars have quite different operating characteristics to national currencies. This means that changes need also to be made in the architecture of a local monetary system. These issues are considered in the following section.

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