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The Tao of Finance: A Social Invention That Can Change the World

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Financing Our Future

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Abstract

Humans’ perception of money often is like a fish’s perception of water. Fish see water as neutral, unchangeable, like a natural law. Similarly, many of us consider money a neutral element that enables our individual desires and societal goals. Money is seen to be like a thermometer: we insert it into water and it simply measures the temperature. But money is not neutral. If we want to understand the nature of water, we need first to step out of the it, then examine it. The same is true of the monetary system. Only by distancing ourselves from it do we become able to see that the monetary system in its current unbalanced form forces us onto a non-sustainable path: it enhances income and wealth disparity, pushes us onto a forced growth trajectory, and is intrinsically unstable, favoring short-term private yields. This system acts in a mainly pro-cyclical manner and exacerbates anxiety, greed, and competition while reducing social capital such as trust and solidarity. And despite advanced new technologies and well-intended individual lifestyle changes, the monetary system prevents us from achieving a more sound, stable and sustainable future. In consequence, more of the same simply will generate more of these unwanted, one-sided and unbalanced results—over and over again.

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Change history

  • 04 August 2021

    This book was inadvertently published without updating the following corrections:

Notes

  1. 1.

    The real economic sector and the monetary sector follow different rationales. In the real economic sector, savings and investment ought to be identical (DSGE model). In the monetary domain, banks can create money, exceeding the savings rate. Savings in the monetary world simply reflect a shift between households and corporates (ISLM model). This aspect is widely used by monetary experts in the loanable funds model (e.g. Bernanke; Draghi; Krugmann). However, there is no causal link between the monetary base of the central bank and the credit expansion of the commercial banking sector. As the commercial banking system is profit-maximizing, the causal link leads from the expanded credit line to the monetary base (Werner 2014). A parallel currency system would change this.

  2. 2.

    For more details, see Lietaer and Brunnhuber (2005) or Lietaer and Dunne (2013).

  3. 3.

    2 degrees of global warming has the potential to decrease economic growth by up to 0.5% with a time lag of seven years (harvesting, infrastructure and adaptation costs) in the global North, but to cause a decrease of 0.5–1% in the global South. This means that climate change will lead not to an economic bust, but rather accelerate the inequality between North and South (IMF 2017).

  4. 4.

    Barrdear and Kumhof (2016) define a CBDC as “a universally accessible and interest-bearing central bank liability, implemented via distributive ledgers, that competes with bank deposits as mediums of exchange”; also see Huber (2020a, b) with an update of the relevant literature.

  5. 5.

    One of the major concerns are default investments. The balance sheet of a central bank is different to that of a firm, household or state. On the one hand, it can sterilize lost investments, causing reduced seigniorage; on the other hand, however, the reduced seigniorage that decreases the state budget needs to be compared with reduced costs in the entropic sector (Ryan-Collins et al. 2012; Sinn 2016; Huber 2020c).

  6. 6.

    In a very long-term view (over several centuries), interest rates have been falling by 0.006–0.016 per year with a high volatility. This is due either to wars, which reduce the capital stock, to periods of peace with reduced risk premiums, or to plagues, where the population has been diminished substantially. Technically speaking, central bankers and regulators can control the interest rate in the short term, but we overestimate their control long term. See Schmelzing (2019).

  7. 7.

    Neoclassical economics usually defines three different types of quantities of money: M1 = money issued by central banks, also called “high-powered money” or base money;

    M2 = M1 + checking accounts and short-term deposits (up to one year);

    M3 = M2 + savings accounts and longer-term deposits.

    To note: Since the introduction of the Euro, M1 increased by factor 10, M3 by factor 3. In the US dollar zone data exceed the Euro. But there is a third factor which is relevant: human behavior, which effectively leads to more qualified consumption, real private and public investment.

    We could define M4 = M3 + parallel currencies as defined in this text.

  8. 8.

    The origins of money can be traced back to the sixth century BCE in Syria, where the first coins appeared. According to anthropologists, the money economy was not preceded by a barter economy. It was rather a gift economy that preceded the money economy among small groups, families and neighborhoods. Money was used with enemies and foreigners, in long-distance trading, and always involved regulatory efforts by the respective political system (Graeber 2011).

  9. 9.

    For example, the M-pesa in Kenya is a widely used cryptocurrency covering almost half the Kenyan GDP, enabling people to trade and do business. The provider is an international private telecommunications firm which charges fees of up to 20% on each transaction (McGath 2018; Safaricom 2019).

  10. 10.

    All these sand-box approaches and grassroots activities are extremely helpful for learning how to steer the system in the right direction. For further systematics of all these activities, see Kennedy and Lietaer (2004) or Kennedy et al. (2012).

  11. 11.

    The history of money follows a history of reduced costs for transactions: from barter to coins, to the gold standard, to credit money, to distributive ledger-associated cryptocurrencies. On the history of money, see Davies (2010) and Ali et al. (2014).

  12. 12.

    There is a strong argument that any form of electronic money with the option of cashing in, whether issued by a central bank or by a private company, runs the risk of becoming totalitarian and controlling its users and consumers. We have to bear this risk in mind and apply adequate regulatory efforts to avoid such a development.

  13. 13.

    See Lagarde (2018); Mancini-Griffoli et al. (2018); McKibbin et al. (2017).

  14. 14.

    “Fiat Lux” were the first words that God pronounced, according to Genesis: “Let there be light.” The next sentence is, “And God saw the light, that it was good.” We are dealing with the truly godlike power of creating something out of nothing (“ex nihilo”) by the power of the word.

  15. 15.

    For the experts in the field: the idea of green quantitative easing corresponds to a number of the ECB’s monetary policies in different ways: OMT (Outright Monetary Policy), where the CB buys up state bonds; open market policy, where central banks buy up currencies, gold, private and public assets; ECT (Enlarged Credit Support), FAP (Full Allotment Policy), implying unlimited refinancing loans; LTRO (Long Term Refinancing operations), SMP (Security Market Policy), which is similar to the OMT; STEP (Short Term European Program) and ELA (Emergency Liquidity Assistance), which reflect emergency credit lines without any liability or rating requirements; and finally, simple bank loans have become eligible for central bank deposits. Draghi’s “whatever it takes” strategy (2012) has caused a huge misallocation of risks and liabilities. In sum: low interest and low rating led to a credit bubble with a misallocation of goods and services from the North of Europe to the South of Europe—most of it without any democratic mandate. In each case the traditional money policy supports concrete investment strategies in member states. And this is exactly what is proposed in this text. However, we propose using different channels and a different monetary design.

  16. 16.

    Open market policy (OMO) is an essential tool to provide and withdraw liquidity to and from the market while buying or selling government bonds; Base money or high-powered money refers to the total amount of central bank money issued. After the 2008 crisis quantitative easing (QE)—buying different forms of financial assets including corporate bonds—became a major source of that figure; the Citizens dividend (CD) refers to the concept of creating direct cash transfers for all of us. There is an overlap between these three monetary instruments (OMO; QE and CD). Either way it inflates or deflates the balance sheet of the central bank involved. To note: the vast majority of the money in circulation is not created by the central banks, but by the for-profit commercial banking system (97%). However designed in the right way, introducing a parallel currency system increases the steering capacity of the (public, not for profit) regulators, benefiting from multiple so-called “second-round effects”, navigating our society towards our global commons and the SDGs .

  17. 17.

    Said verbatim by Mario Draghi—ECB, July 26, 2012.

  18. 18.

    To note: additional earmarked liquidity has the potential to reduced foreign currency reserves at a state level, which currently stand at 11 trillion USD globally, offering further political leverage for resilience in case of monetary shocks (IMF 2019).

  19. 19.

    There is a more comprehensive argument to the “new normal”: we are experiencing zero to negative interest rates as the “new normal”. In such a world, the price signal for money (which is expressed in the interest rate) loses its signaling power, creating zombie-like corporates (estimates range from 1.5–2% in the EU), buybacks on the stock market and unproductive asset price inflation. This distorts efficient market allocation. 80% of the revenue of the banking sector depends on these interest-based revenues. Over 15 trillion USD of state bonds and over 40% of corporate bonds already have a negative yield. Besides demographic changes (aging population with higher savings) and new disruptive technologies (platform economies requiring less capital), the blame traditionally goes to the regulators for having printed too much money to stabilize the economy. However, in a complex, non-linear world, the “chicken-and-egg” argument no longer holds. The interest rate is one of the few instruments central banks have at their disposal to regulate the real economy. A dual currency creating a second, green market place would overcome the constraints immediately and put an adequate price on our green future. Once this price is higher than the new normal in the traditional economy, business will shift gradually but consistently towards a green future. In technical terms, we are talking about a carry-trade effect.

  20. 20.

    NGFS (2019); Lagarde and Gaspar (2019); Coeure (2018).

  21. 21.

    To be more specific for experts in the field: the classical regulator rule “one needle in the compass” (price stability) policy is complemented by an additional non-financial purchasing program, which reaches out through new monetary tools and is implemented through national or international development banks. This “going direct” policy identifies projects (SDGs ) whose financing could act as bonds, grants and/or loans with virtually perpetual or very, very long maturities. In fact, this would increase the balance sheet of the operating central banks and their partnering developing banks. In case of a partial default, where the bank accumulates stranded assets, the initial seigniorage for exactly that additional amount of “hot money” has to be written off, and the amount of M0 has to be sterilized. From a macroeconomic perspective, however, the monetary aggregate M3 is more relevant. If we start investing in projects with the highest ROI (return on investment) for society as a whole (mainly commons), using blockchain technology, we can ensure that the overall wealth generated for the society reaches a Pareto-superior equilibrium where price stability eventually is achieved, which was the policy in the first place.

  22. 22.

    Adapted from a dialogue referred to by J.M. Keynes in which an eminent architect who wanted to rebuild London asks: “Where is the money coming from?” (Keynes 1980, p. 308).

  23. 23.

    The World Bank, IMF and regional development banks have advised nations to borrow savings from abroad, via portfolio investment, FDI or loans in order to augment domestic savings and achieve a higher growth rate. Most literature, however, has chronically ignored the domestic banking sector. Money in foreign denominations (which is simply commercial bank-created money) never enters the receiving economy, but results in a credit expansion in the domestic bank. This can be achieved without foreign investment. There is increasing empirical evidence that foreign direct investment (FDI) does not trigger growth, but rather crowds out the domestic market. FDI simply competes with domestic investment for funding. Policy makers would do better not to waste taxpayers’ money on attracting FDI and instead spend more on domestic education and SME. There is a significant increase in inequality in developing countries with high FDI, with a clear causal link between FDI and inequality. In addition, most figures on FDI are misleading. They become a kind of black hole. Large companies simply reroute their money through offshore locations. Empirical data demonstrate that 30–50% of FDI in the UK and USA and up to 80% in Russia uses this investment loop. In short: who is the largest investor in the UK, in the USA and in Russia? It is the UK, USA and Russia themselves. See De Haldevang (2017) or Bermejo Carbonell and Werner (2018).

  24. 24.

    See Dixon (2017).

  25. 25.

    Especially as social projects (unemployment) and ecological projects (global warming or biodiversity) require more than the average increase in GDP can cover in both absolute and relative terms. This forces the overall economy to grow. Empirically, a growth of about 1.8% is required so that the economy does not collapse (Binswanger 2006, 2009). Further aspects have been identified that force our economy to grow: from disruptive technologies, to changes within the human capital (like education), to different forms of output elasticity of the production factors (energy and labor), to planned obsolescence, to the compound interest rate. Each time, our economic activities are forced to grow in order to stabilize the system (Brunnhuber 2018). A parallel currency system, as explained here in the text, has the potential to reduce or even eliminate the need for expansive growth. Instead of redistributing money, it generates targeted and proportional liquidity and purchasing power to match the social and ecological projects identified in the region in question.

  26. 26.

    In its extreme form, redistribution is called the “Robin Hood effect” (Atkinson et al. 1992). If we consider the wealth of 2000 billionaires (each owning 1 billion USD), the fact that they have generated this wealth over one generation (30 years), and the fact that there are 7 billion people on the planet, we arrive at the following equation: 2000/7/30=10 USD per capita per year over 30 years. This means that in a world where wealth is equally distributed, each human could go and get him- or herself one extra fast food meal per year for 30 years. Or, to put the argument the other way around: a premium of 10 USD per capita per year is the cost of each human being living in the world of Bill Gates instead of a socialist dictatorship. Asymmetries are not always bad, especially when they occur above the minimum wage and basic living requirements. The SDGs need to meet basic needs; as long as this is the case, we can be tolerant of asymmetries in wealth.

  27. 27.

    See UN (2015).

  28. 28.

    Ellen MacArthur Foundation, Growth Within: A Circular Economy Vision for a Competitive Europe, 2015; Stahel (2019).

  29. 29.

    See World Bank Indicators (2018b). Agenda 21 cost around 600 billion USD annually worldwide, and the industrialized countries were supposed to contribute 100 billion USD annually, which is equivalent to 0.7% of the GDP of the rich nations at that time. The idea was to extract this amount of money from the “Peace Dividend” of disarmament after the end of the Cold War and redirect it into ecological and social projects. In reality, most of those dividends went into tax reductions within the rich countries. See United Nations Conference of Environment and Development (UNCED 1992).

  30. 30.

    UNCTAD (2014); World Bank Indicators (2018b).

  31. 31.

    Historically , development financing started with UNCTAD III in 1972, involving a debt relief campaign and a more multilateral framework to examine debt problems; in 1977 there was a call for explicit debt restructuring (TD/AC 2/9); 1980/1986 saw further details for sovereign debt restructuring based on Chapter 11 of the US bankruptcy reform act of 1978; 1996 brought the HIPC initiative. All these proposals were ignored until the Russian and Asian crises in the late 1990s and the global liquidity crunch of 1997/98 (Kregel 2004; Ricupero 2004; UNCTAD 2019).

  32. 32.

    Charity, philanthropy and private pledges are good things, but from a systems perspective they represent something like a hobby, an amusement that appeases the conscience rather than changes the world. It would have been better to use this knowledge and money to improve the value chain up- and downstream along the given business model and to abandon or write off parts of the revenues instead. The money would have been invested better.

  33. 33.

    World Bank (2019).

  34. 34.

    See European Central Bank (ECB 2015).

  35. 35.

    For example, to meet long-term sustainability goals in the Sustainable Development Scenarios on a global level, low-carbon investment would need to grow two-and-a-half times by 2030, with its share rising to 65%; annual average investment required for 2025–30 in IEA scenarios is 2 trillion on a European level. On a global level, an additional global investment of 260 billion USD to 370 billion USD a year is needed to reach a 450-ppm climate pathway over the coming 15 years. An estimate of 53 trillion USD in cumulative investment in energy supply and in energy efficiency is required over the period up to 2035 in order to move the world onto a 2°C emissions path. The transition towards a more cyclical economy would cost Europe some 100 billion USD over the same period. According to International Energy Agency forecasts, decarbonizing our power grid would require 20 trillion USD up to 2035. The overall costs for all SDGs are estimated at around 4–5 trillion USD per year in public spending, investments and direct aid. According to the United Nations Conference on Trade and Development (UNCTAD), there is an annual investment gap of at least 2.5 to 4 trillion USD. See Ellen McArthur Foundation (2015); UNCTAD (2014).

  36. 36.

    UNCTAD (2014); World Bank Indicators (2018b). Throughout the last decades, there have been numerous proposals for so-called innovative finance: these included the Brown report in IFF, the LULA/CHIRAC working group proposal of air ticket taxation, the Tobin tax on currency transactions; THE WIDER report and §44 and §45 for development banks (AAAA 2015; Atkinson 2005; Brown 2004; Tobin 1978; Working Group on New International Contributions to Finance Development 2004). See additionally Club of Rome (2019) and Schroeder (2006).

  37. 37.

    Desjardins (2017); Van der Knaap and De Vries (2018).

  38. 38.

    See Grubb et al. (2019); United Nations Conference of Environment and Development (UNCED) (1992).

  39. 39.

    This so-called “liquidity trap” describes the phenomena that occur when monetary regulators fail to stimulate or influence price levels with an interest rate at or close to zero; Sumner, Scott. “The other money illusion”. The Money Illusion. Retrieved 3 June 2011.

  40. 40.

    J. Ryan-Collins, T. Greenham, G. Bernardo, and R. Werner (2013). “Strategic Quantitative Easing”. Published by the New Economics Foundation (NEF). Available at: http://www.neweconomics.org/publications/entry/strategic-quantitative-easing.

  41. 41.

    See Ryan-Collins et al. (2013).

  42. 42.

    Jackson (2013); Bank of England (2016); Van Lerven (2016); Positive Money (2014); El-Erian (2016), where the author concludes: “It is better to plan to fail than to fail to plan.”

  43. 43.

    Empirically, none of the conventional monetary channels helped to provide adequate liquidity to the real economy. One of the reasons for this failure is that all these channels offer their own narrative on how it could work, but the conventional quantitative easing (QE) mechanism does not offer any empirical evidence of causality. This so-called “liquidity trap” describes the phenomena that occur when monetary regulators fail to stimulate or influence price levels with an interest rate at or close to zero (Ryan-Collins, Werner, Greenham, and Bernardo 2013; Sumner 2010; Benes and Kumhof 2012).

  44. 44.

    Traditionally consumption on the one hand refers to human capital, wages and day-to-day short-term requirements (food, transportation, rent, clothing), whereas investment on the other hand reflects economic activities, such as building a bridge, a sewage system, a hospital or simply buying land. However, this differentiation between investment and consumption strategies is arbitrary and outdated. Any investment strategy triggers consumption right away and any consumption implies additional investments. When the quality of human capital (education and health status) is key for any future successful business and politics, the only relevant economic performance indicator is return on investment. And as investing in humans has the highest ROI, we should simply abandon the traditional difference between consumption and investment. And at the end of the value chain, hopefully there always will be someone who will buy a veggie burger!

  45. 45.

    Werner (2003); Harari (2016); for a revised Chicago Plan see Benes and Kumhof (2012).

  46. 46.

    Despite defaults, restructuring and haircuts sovereign bonds have been a history of investor profits for a long period of time. A 200-year period on emerging markets reveals, despite wars, default episodes, global crisis and despite an average haircut below 50%, a compensating excess return over the risk-free rate of 7% annually, which outperforms corporate bonds. See Meyer et al. (2019).

  47. 47.

    Buteică and Huidumac-Petrescu (2018); Engerer (2019) or oneplanetswfs.org.

  48. 48.

    The Austrian School of economics (Hayek, e.g. 1976; Schumpeter, e.g. 1912) is one historical source for the TAO of Finance. Economic development should not be limited or constrained by domestic savings, external borrowing or taxation. Financial transfers are not necessarily required. Money can be “created out of nothing” as long as the financial sector has a monopoly on it. Bankers create additional purchasing power for entrepreneurs by generating credit lines. For Schumpeter, the banker is the “ephor”, the “mastermind” of any successful development. Hayek even went one step further, advocating the de-nationalization of the monetary system, allowing everybody to create their own money. The free market system then would select the most powerful currency. The TAO of Finance represents a position in between a monetary monopoly and a fully decentralized and privatized monetary system, advocating a dual system only.

  49. 49.

    Technically there are three ways to get liquidity into the market: firstly, open-market policy by purchasing government bonds; secondly, lending money to the commercial banking system; and thirdly, injecting liquidity directly into the economy.

  50. 50.

    A further technical detail: if the green parallel currency were backed up by 100 kg of CO2e, it would generate an upstream incentive to hold on to and invest in this currency for at least 15–20 years from now, as we can expect the price of CO2 to increase over that time period due to regulation and carbon taxation. This would operate like a “new gold standard” for a new green age. This is the time span within which such a currency would rise in value as the price of CO2 per ton would rise, until all investments have been cleared and we enter a low-carbon age. Then, 20 years from now, we would have to de-risk and deleverage this back-up. Details for this argument come from Chen (2018), or Chen et al. (2018); Chen, van der Beek and Cloud (2017).

  51. 51.

    Critics of digital transactions may argue that the state exercises excessive control over citizens’ freedom to use cash. The argument goes so far as to say that central banks and governments have every control over all financial transactions, leaving individual companies and citizens completely exposed to potential state abuse. This argument cannot be dismissed entirely. However, it is important to bear in mind that over 97% of transactions today already are conducted digitally. A possible interim solution would be for local transactions to continue to have the option of cash, although these transactions also would be marked as “green” (via a barcode). The main argument of a parallelization of the monetary system thus remains valid. For the debate on surveillance capitalism see Zuboff (2019).

  52. 52.

    A further technical detail: in the first phase, a limited convertibility with the conventional monetary system with, for example, a 10–15% exchange rate might be useful. This would encourage clients, companies and states to reinvest in the SDGs or to convert money with a loss. Long term, this mechanism would achieve a higher stability as it would be pegged to real, sustainable long-term investments.

  53. 53.

    According to IMF 2019, 40% of FDI is phantom capital, where the liquidity is transferred through Special Purpose Vehicles (SPV) to offshore places without any real economic activity. This amounts to 15 trillion USD in corporate money. Luxembourg and the Netherlands hold 50% of that capital. In total, 85% of the entire sum globally is located in 10 countries only (see : IMF 2019, Damgaard, Elkjaer, Johannesen).

  54. 54.

    Batini (2019); Crowder and Reganold (2015); Network for Greening the Financial System (2019); Willett et al. (2019).

  55. 55.

    See Masters et al. (2017).

  56. 56.

    The implicit public debt load in OECD countries is between 2–5 times higher than the explicit debt. Aging (pension claims, health care costs), increasing poverty and income inequality will increase this sum in the near future. The conventional calculation is that an increase of 5% in taxes or fees is required to finance this sustainability gap. Alternatively we could withdraw this amount from the current economic process, reduce the public payments for social security and pensions and/or increase the number of years before people can claim their pensions. The mechanism described in this text represents a better answer to these challenges, however.

  57. 57.

    See Masters et al. (2017).

  58. 58.

    See Ernst and Young LLP (2016); see also literature on the so-called “Heckman equation” (Elango et al. 2015; Heckman et al. 2010).

  59. 59.

    See Bivens (2017).

  60. 60.

    Blockchain technology and its derivatives involve several tradeoffs: trust and transparency on the one hand and control and lack of privacy on the other; or the well-known “garbage in, garbage out” effect: any smart contract can deliver bad, illegal or unwanted transactions, such as illicit financial transactions; or the tradeoff between security and energy consumption. Another tradeoff is the disruptive power of the loss of any intermediary for the mass aggregate demand. Each time, it is we as humans who decide which part of the tradeoff we are better off with.

  61. 61.

    Much as email is one of the first basic applications of the internet, Bitcoin is one of the first applications of blockchain technology. Much more is still to come.

  62. 62.

    We should note that often it is not the democratic mandate or the public discourse, but an AI algorithm that provides us with knowledge. Autocratic systems choose this same technology to control their people. The corporate world is also using AI to identify new business models. And this in consequence forces us to clarify several things: who creates the algorithms, for which purposes are they being used and who owns, monitors and controls the data?

  63. 63.

    Nassehi (2019).

  64. 64.

    Operating within market solutions, of this sort of technology has two substantial impacts: first, platforms replace middle men (law of the excluded middle), which impacts on mass demand. Second, the network effect produces monopolies which normally generate higher prices and lower quality. As corporate tax rates are lower than personal taxation, they further reduce fiscal yields and put pressure on governmental budgets, leading to further austerity and decline of social expenditures.

  65. 65.

    See the UN World Food program as a first proof of concept. A smartphone interface with a biometric identification system prevents misuse and fraud. There is greater security and privacy for the clients enrolled, as sensitive data are not shared with third private parties, like social media firms or banks.

  66. 66.

    In the information age, private versus public ownership affects not only tangible goods but also the way we organize the flow of data. We should differentiate between private and personal data ownership. Personal data are the information each of us generates on a day-to-day basis in any digital form. Private data ownership means that these data become the property of a private actor, like a corporation. A private actor can then monopolize, limit or distort personal data in order to generate profit. In order to guarantee a maximum flow of information, personal data should be distributed in a decentralized way. If we take the laws of sustainability as a given, where the “anti-fragile zone” between efficiency and resilience determines the degree to which a system remains on a long-term, sustainable path, we must request that personal information remains within an individual’s personal network and not be privatized. See Sir Tim Berners Lee’s project Solid (https://solid.inrupt.com) or Threefold (https://threefold.io).

  67. 67.

    As mentioned above, the most widely discussed alternative channels are the citizen dividend, the public channel, the channel for small and medium-sized enterprises (SMEs), and the NGO and IGO channels to directly fund these bodies and private-public partnerships, including so-called advance market commitments (AMCs). For an example of advance market commitment, see Barder et al. (2005), or Light (2005).

  68. 68.

    As each economic and policy intervention should have human labor as its final purpose, we can make the following equation: 52 weeks makes 2080 hours, 12 USD/h (gross salary) equals 24,960 USD annually. Assuming 350 million people are unemployed across the globe, 8.7 trillion USD are needed to provide them with jobs. Considering a Keynesian multiplier of two, 4–6 trillions are necessary to provide full global employment. This equates to the amount discussed above that is required to finance the SDGs . The parallel currency mechanism can therefore roughly meet unmet needs, creating purposeful jobs for our common future . The human being is the ultimate resource for wealth, creativity and labor (Simon 1983).

  69. 69.

    As a default scenario: even if only 70–80% of the projects targeted are accomplished and we have to write off the rest of the generated additional liquidity, two things will have happened. First, we will have achieved 70–80% that would not have been accomplished in the first place. For example, 70–80% of people below the poverty line will have been lifted out of poverty. Second, the sovereign central bank will have an enlarged balance sheet with an additional 20–30% of liabilities with unlimited maturity, which decreases the seigniorage for the sovereign state respectively.

  70. 70.

    One way to ensure this is synchronizing human behavior in large cohorts (like singing, dancing, running or walking together). Once such a synchronizing mechanism is in place, prosocial behavior is favored and free-rider effects reduced. The mechanisms we describe in this text support these empirical findings. Within the given atomistic, individualized, singular, competitive and deregulated free market, individual utility-maximizing behavior rather favors the opposite: free-rider effects, negative externalities and reduced prosocial behavior (see Spitzer 2018).

  71. 71.

    World Bank (2018b).

  72. 72.

    There is undoubtedly an overlap with Modern Money Theory (MMT): at its core, MMT states that the creation of money to solve real societal challenges is not dependent on tax revenue or achieving the same rate of saving and investment, but on the inflation rate and full employment in each economy. Banks are not intermediaries and saving is not the only source of public investment. This means that every nation with the sovereign right to generate a currency can print that currency to finance their budget without any corresponding liabilities. States do not have a tight budget belt, but there are political limitations to where they can invest their money. Any time when governments run a budget deficit, they create a central bank reserve at the same time. So why not generate the liquidity necessary to finance our future ? Once full employment is achieved, taxation and issuing bonds can be adapted to the economy, removing excess money from circulation. From a private-investor perspective, jobs and public commons are considered to be costs that have to be minimized. In contrast, from a public perspective, public debts create private wealth. Once a deflationary scenario is identified, the sovereign state has a free lunch to finance these assets. In this sense, direct public investment in the intermediary creation of jobs is far more efficient than a general unspecific fiscal stimulus.

    The difference between the TAO of Finance (ToF) and MMT is that we (a) advocate a dual currency from the first, (b) which can operate as a permanent automatic stabilizer for the overall economy, (c) steers the economy towards a certain target, (d) guarantees that funds will be directed towards these targets through distributive ledger technology, (e) operates through different monetary channels to the credit market and open market policy and (f) allows society to aim for greater sustainability through multiple second-round effects. To note: the dual-currency approach explained in greater detail in this text goes beyond job creation and targets the SDGs . For further literature on MMT, see Coy et al. (2019); Mitchell et al. (2019); Mosler (2010); Wray (2015).

  73. 73.

    An important detail for investors: an initial interest rate modestly higher than the domestic growth rate and higher than the interest rate of the given international currencies (USD, Euro) will attract international donors/corporates/institutional investors trapped in the “new normal” of “secular stagnation”, encouraging them to swap their low- to negative-yield investments for higher-yield investments via green bonds. A state guarantee issued in this new green sovereign currency (we can call it a “green dollar”) will create a carry-trade effect: a debt to equity swap will be converted into a so-called equity to green equity swap. This financial engineering avoids additional international debts and payments. To note: there is a tradeoff for the investor, who can achieve higher yields in the sustainability sector—with the exception of a digital ban list that prohibits the trading and buying of certain goods (e.g. child labor, land mines, alcohol, cigarettes and guns).

  74. 74.

    According to our calculation, a Global Sustainability Fund to manage the additional green parallel liquidity would require 200 staff (lawyers with experts in international trading and payment systems, investment bankers experienced in sustainability and development aid, IT and administration) and would take less than a year to get started.

  75. 75.

    For example, the concept of a Green QE (Anderson 2015), People’s QE (Murphy and Hines 2010) or Helicopter Drops (Bernanke 2000), Overt Monetary Financing (OMF) (Turner 2013), or Sovereign Monetary Creation (SMC). As an overview, also see Van Lerven (2016). To our knowledge, despite their intellectual rigor, none of the proposals offer a dual-currency approach of the kind addressed in this text. All the proposals so far remain embedded within a monetary monoculture.

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    Stefan Brunnhuber

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Brunnhuber, S. (2021). The Tao of Finance: A Social Invention That Can Change the World. In: Financing Our Future. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-64826-8_5

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  • DOI: https://doi.org/10.1007/978-3-030-64826-8_5

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