The 17 Sustainable Development Goals (SDGs) of the UN set out the aims of ensuring the future of life on Planet Earth is clean, healthy, and rich in biodiversity. However, reaching these goals is expensive, requiring around an additional $5 Trillion per year over the next 15–20 years. So the question now is: How to finance our Future?
The Tao of Finance initiative from the World Academy of Arts and Sciences proposes outside-the-box solutions to generate the funds needed, utilising distributed digital technologies and innovative approaches to finance.
Read more about the Tao of Finance at the WAAS website, or read the book ‘Financing Our Future: Unveiling a Parallel Digital Currency System to Fund the SDGs and the Common Good’.
Image credit: Khongtham/ Shutterstock
Hello, and welcome to ResearchPod. Today, we’re talking about an initiative of the World academy of Art and Science (founded by Albert Einstein) called “the TAO of Finance”. With an international and interdisciplinary expert group, headed by Stefan Brunnhuber, they tried to answer the question: How can we really finance the 17 UN-Sustainability-Developments Goals within the next 15 years?
Or in other words: How can Wall-street and Central banking together end poverty, prevent species losses, and tackle climate change all at the same time?
In New York in 2015, world leaders signed up to a future roadmap with 17 Sustainable Development Goals (SDGs) based on the five Ps: people, planet, prosperity, peace and partnerships. Most of the SDGs focus on common goods such as clean air, universal access to healthcare, education and maintaining biodiversity. These goods are not exclusive and should be accessible to and enjoyed by everyone. There is enough scientific evidence, technological expertise and political consensus to achieve each of these goals, and they are valid for the entire planet. But achieving the goals is expensive, requiring around an additional five trillion USD per year over the next 15–20 years to finance. So the question now is: How to finance our Future?
Historically, the global community has committed to spend 0.7% of global GDP – roughly 500 billion US Dollars per year – to finance common goods. Other than the Scandinavian countries, the vast majority of the world has never attained this 0.7%. But even if all countries did so, this sum is not realistically enough to finance our future. Approximately ten times more funding – equivalent to five trillion out of the global GDP of 80 trillion USD – is required to meet the social and environmental challenges we face. Withdrawing five trillion from the economic process, even in a gradual manner, would lead to a global recession.
The conventional way to finance social and ecological projects globally has been by redistributing money via taxations, fees or philanthropy remaining at the end of this pipeline. But such an end of pipe finance is too slow in speed, too low in volume and not targeted enough. We have to do different and we have to do better.
Traditionally, the free market and state intervention are considered as opposites, with the smallest common denominator providing the best possible solutions. But then we end up with over-regulated markets and over-indebted public agencies, ultimately leading to suboptimal results for all of society.
The Initiative of the World academy of Art and Sciences proposes an alternative to approaches focusing on silo solutions and simple stimulus responses. A so called ‘strategic triangulation’ which can offer an additional tool to avoid the smallest common denominator and suboptimal results. It involves introducing a third party that can bridge divides and unlock the full potential for both parties. Strategic triangulation can lead to a more systematic approach to problem-solving and allow us to overcome siloed thinking.
Let’s consider a specific example. A society decides to spend 40% of its GDP on public goods (ie: hospitals, nurseries, universities, motorways, digital infrastructure, basic needs). If the society has sovereignty over its money creation process (i.e. if it can print money), does not have to rely on external debts nominated in a foreign currency and has the necessary human and natural resources, then it can eventually generate the amount of money needed by itself to directly fund the UN-SDGs and our global commons. Consequently, the subsidies and taxation schemes for the private sector initially brought in to finance these commons will be phased out over time. We would then end up with a free and competitive market system, which makes it possible to allocate goods and services optimally while at the same time having a high-functioning public sector, where the state authorities enable our commons.
We can take this argument one step further. The private purse is not the public purse: private households and corporates have to budget carefully so they don’t go bankrupt. Private households and corporates cannot spend more than they earn in the first place. The public purse, however, is different. In a situation where there is a sovereign nation state with the ability to issue money, the financing of its public budget follows a fundamentally different logic to the private sector. But both require a third party to be involved to overcome the constraints of any end-of-pipe financing. Central banks and regulators, operating in a proactive, preventive and restorative manner, can serve this role. This means that monetary policy will trump fiscal policy when it comes to financing our commons.
Based on systems thinking, the TAO of Finance-initiative proposes outside-the-box solutions to generate the funds needed to finance global common goods: One option is that Central banks would be given a new monetary mandate to create and issue the five trillion USD equivalent of liquidity using blockchain technologies. Alternatively, properly regulated corporate initiatives (cryptocurrencies) or complementary communal currencies (Local Exchange Trading Systems Or LETS, or regio-money) would receive a mandate to issue additional liquidity. These funds would be earmarked and used exclusively to finance SDG-related projects. This electronic liquidity would run through alternative monetary channels to those of the conventional system. The established commercial banking system and international development finance institutions like the World Bank, IMF, European Investment Bank and regional development banks will start to play a new and crucial game in town.
We would then have a supplementary currency operating in parallel to the conventional monetary system generating the five trillion USD equivalent needed annually for the next 20 years. Research on optional parallel currency systems has shown several dozen positive effects. For example, this new technology could be used to create and channel targeted financial liquidity to millions of African citizens through their mobile phone network. In India, the existing microcredit banking system could be used to transfer additional liquidity to millions of Indian citizens. Any dollar spent and invested through these green, parallel channels has the potential to reduce or even eliminate absolute poverty globally within less than one year. The electronic format would prevent corruption and fraud, as each transaction would be transparent and public. Once the currency was accepted for payment of taxes, local authorities would have additional liquidity to rebuild public infrastructure such as nurseries, parks, hospitals and libraries. And the millions of NGOs globally would finally receive the funding they need to do their jobs properly. This targeted added liquidity would enhance education and provide otherwise unachievable access to universal healthcare. It would reduce resource depletion and clean up the air, avoiding the negative effects on our planet and on public health. We would eventually unlock the untapped potential and creativity of millions of unemployed people by creating new jobs, thereby unleashing the creativity of billions more.
The challenge is not to privatise the commons, but rather to adapt our financial system to the nature of the commons. In short, we need more and better finance. And in fact, this is happening already in a fledgling, experimental form. Monetary regulators and central banks are currently testing what are known as central bank digital currencies (CBDCs) in order to provide additional, targeted liquidity, thereby enhancing their steering capacity, bolstering price stability and generating thousands of new green jobs and public revenues as well as operating in an anti-cyclical manner. If done in the right way, we would have the monetary mechanism in place to finance the UN SDGs and the associated commons. Eventually, we would have the tools available for new, almost unlimited forms of financial engineering to fund and hedge the associated risks. In short, we can wake this sleeping giant.
We can start identifying (almost) unlimited new, innovative financial instruments and forms of financial engineering, including blended finance, derivatives and swaps, direct digital cash transfers and new state guarantees.
Several additional proposals have been discussed in recent years on how to upgrade the existing monetary system, including the modern monetary theory approach, positive money and a central bank stablecoin. None of these proposals are without merit, but the World Academy of Art and Sciences initiative tries to provide a different and more advantageous proposal for how to finance our common future. It honours the endeavours but differs in at least two respects from all other proposals made so far: namely, the parallelisation and digitalisation of the current monetary system.
A parallel, special-purpose digital currency based on distributive ledger technology (DLT), accepted as legal tender to pay taxes and wages, convertible into traditional currencies, bearing a higher interest rate (than in the traditional fossil marketplace) and issued by central banks (CBDCs) or regulated private agents (cryptocurrencies) could meet these requirements. It is like riding a bike with two wheels rather than a wobbly unicycle. If we simply inject additional liquidity into the existing value chain, we not only risk consolidating the current track, which still depends on fossil fuels for over 78% of its energy needs, but also negating all our efforts or even making things worse. Assuming a multiplier of 1.5– 1.8, simply increasing the liquidity could do more harm than good. Any wind turbine or solar panel that is installed would feed back into the existing fossil value chain through multiple second-round and rebound effects. We need a wedge or parallel financial incentive that ensures a shift from the old to the new, from fossil towards a net zero economy.
Besides parallelising the currency system, which allows us to create inflation-proof, anti-cyclical and resilient incentives for a new green marketplace, the monetary channels should be digitalised with the support of a distributive Ledger Technology (DLT). DLT would have significant impacts on all economic activity; It would increase transparency, trust and traceability, end money laundry and its we would regain via smart digital contract control over where the money is going.
In short, we need much more financialisation, but delivered in different way. All this could be started in less than six months, if the six largest central banks agreed to create a parallel, optional, complementary currency. A redesign of the financial system would not solve all our problems, but it would allow all our problems to be addressed more easily. This, or a very similar mechanism, is the missing link to achieving better outcomes for the five Ps: people, planet, prosperity, peace and partnerships.
Instead of funding, hedging and managing our global commons using taxpayers’ money, private investments or philanthropy alone, the TAO of Finance-initiative suggests that central banks should become proactive rather than reactive and prevent problems rather than repairing the damage afterwards.
The indispensable missing link in the debate on sustainability is the monetary system. The existing system is too brittle, slow and low in volume to fund our global commons and to hedge the associated planetary risks. Traditionally, Finance drives Sustainability. We should do the reverse and upgrade the system, so that Sustainability drives Finance – and the mechanism described here provides just that.
To read more about the Tao of Finance-initiative of the World Academy of Art and Sciences, visit their website, linked to in this episodes‘ description, or read the book ‘Financing Our Future: Unveiling a Parallel Digital Currency System to Fund the SDGs and the Common Good’ available online and through all good book stores.
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