6. New Symmetries: The Future Has a History or a Path with a Heart

According to Transparency International (2018), the average corruption index globally is 43 out of 100. This means that corruption is endemic and systemic, especially in the public sector. We require a mechanism that does not enhance, but reduces corruption. The mechanism described in this text has this effect.

A widely used taxonomy to differentiate between different forms of illicit financial transactions is: (1) criminal market (human trafficking, drugs); (2) theft-type market (resources of any kind); (3) corruption; (4) illicit tax transactions (misinvoicing).

There is an empirical link between public spending and wealth over time. The higher the share of tax in government expenditure (in contrast to FDI, ODA), the higher and stronger the developments over time and the higher the commitment to public health care and education.

We are witnessing a corporate tax race to the bottom: globally, the corporate tax rate is around 20–30%. However, whereas OECD countries have retained their general tax base, developing countries have lost it. From an administrative perspective, it would require 650,000 tax officers for Africa to meet OECD standards (OECD 2019).

There is an ongoing net outflow from the South to the North. Historically this outflow was due to external debt payments, but now this has become superimposed with increasing illicit financial flows (IFF).

External debt payment in proportion to governmental revenue is a more comprehensive figure than a country’s absolute debt burden. After 2014, external debt payments increased by 60% globally, and total debt stands one third higher than before the 2008 crisis (Jubilee Debt Campaign 2018).

See Cobham and Janský (2018). Further data support the magnitude of the problem: there is increasing private wealth (10% of global GDP) in tax havens, causing tax losses of 200 billion a year; terror financing amounts to 2.5 trillion USD annually; and 10% of total global trading takes place through illicit financial transactions. This results in a global tax gap of 5 trillion USD annually. 20% of this tax gap is due to transnational corporations and 80% due to individual businesses and SMEs, mainly trading informally and in cash. Illegal transactions amount to 20–25% of GDP globally, corruption costs the world community 2.6 trillion USD annually, and money laundering amounts to 1.6 trillion USD annually. Global revenue losses due to tax base erosion and profit shifting (BEPS) have risen to 100–240 billion USD annually. These figures demonstrate the magnitude of the amounts lost to the public sector. It appears next to impossible to regulate such volumes within the given monetary system. A parallel system would correct these illicit financial transactions indirectly. See Alstadsæter et al. (2018); OECD (2014, 2015); Pietschman and Walker (2011).

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

Neuwirth (2011).

Measured in inflation-adjusted USD as of today globally. See Soto (2000).

The Economist, Sept 12–18, 2020, pp. 31–33.

The unacknowledged taxpayer contribution to public R&D assisting private revenues is well documented by economist M. Mazzucato in The Entrepreneurial State (2013). The same is true of taxpayer investment in urban infrastructure including airports, sanitation, universities, hospitals, kindergartens, administration, security and defense; all substantially lower any state debt-to-GDP ratio, allowing private business to flourish.

To note: the connection between the size of a bank’s balance sheet and the quantity of collateral is empirically weak. A large proportion of bank lending is uncollateralized (40% of all US commercial and industrial lending is uncollateralized) (FRED 2017).

For experts to note: central banks can create additional liquidity through a so-called open market policy, where they buy up state bonds, which in turn provides additional liquidity for the state. In that case, the relative risk of that state’s debt portfolio is reduced and the risk premium in form of the interest rate is lower because it is a non-defaultable loan. In consequence, this will provide such a state with an additional fiscal space for additional investments or taxation (see Kumhof and Tanner 2005).

We need to differentiate between a real market failure and the lack of a market. Markets created through a regulatory and political process are highly formalized, with transparent liabilities and property entitlements. If there is no such market to ensure state bonds in developing countries, we cannot characterize this as a market failure. Real market failures occur when there is a monopoly with a lack of competition, where negative externalities are socialized instead of internalized, where there is a significant information asymmetry between the supplier and the client with regard to the quality of the good or service, or where public goods are overused or neglected. In all these cases, it is important that politics and civil society control, regulate and determine the activities of the market.

Hyperinflation has been relatively rare. Since 1945 about 56 cases, mainly due to war or revolution, have been documented (Hanke and Krus 2013). From a financial perspective, weak public finance (one single source of tax revenue, public corruption and unclassified welfare) was an important accelerator of hyperinflation. The mechanism described here prevents all that: it increases the sources of tax revenue, reduces public fraud and corruption, and reduces disaster management costs.

Banks are considered to be intermediaries offering a specific service for the public and private sectors and adding value to their productivity. However, the financial sector is highly concentrated. For example, in the UK 5 private banks cover 85% of all deposits (Gond et al. 2014). The larger the bank, the larger the loan, the larger the bonus, and the smaller the liability and accountability of the process. In order to increase accountability, the banking sector ought to be more decentralized, the way it is in Germany with over 1500 Raiffeisenbanken, Volksbanken and Sparkassen. There has never been any need to bail out a decentralized and regionalized banking sector. The banking system is not primarily an intermediary; banks do not deposit money on the one hand and lend money on the other. The commercial banks create money. Just to clarify the situation: a deposit in a bank is a loan to the bank. 97% of the overall aggregate money supply is created through the commercial banking system. In this more realistic view, a credit is a fictitious loan. As long as banks invest in productive goods and services, it is a form of a productive lending. However, over two thirds of lending go to the FIRE sector. Here, the credit finances an asset ownership transaction, but does not produce goods or services. The purchasing power increases the API, which in consequence increases inequality. Only consumer credits might increase the CPI. Therefore the decisive question is: where does the money go? We might better say: money is what money does. This is one of the reasons why the regulatory efforts of BASEL III (and its follow-ups) will not work, because this regulation basically considers banks as intermediaries only. What is required here is a form of regulation that steers the banking sector and bans unproductive FIRE investment. The bank still can speculate but should do this with funds or money from the capital market. To note: the City of London legally is not part of the UK and not part of the EU, the citizens have no right to vote and the Queen has no legal right to intervene. Strictly speaking, the City of London is an unregulated offshore place and the UK officially has no financial sector. Which simply means: “The emperor has no clothes.” See literally Werner (2014).

Hyperinflation is often created by external speculative exchange rates with other currencies through carry traders and other private currency investors. This in consequence causes the domestic central banks to print even more money. The mechanism of a parallel currency regime, targeted to a green future with a soft peg to the conventional currency, backed up by defined collateral commons and operating through digital distributive ledger technology, is much less prone to such external speculation.

Bruce-Lockhart and Terazono (2019).

According to the CIA world factbook (2014), the following countries and regions use more than one currency to stabilize their economy: China, which uses Yuan for international trade and renminbi for domestic activities, starting officially in 2004; Bhutan, which uses ngultrum (BTN) and the Indian rupee (INR); Cyprus, which in the Greek Cypriot area uses the Cypriot pound (CYP) and in the Turkish Cypriot area uses the Turkish lira (TRL); Guatemala, which uses the quetzal (GTQ) and the US dollar (USD); Guernsey, which uses the British pound (GBP) and the Guernsey pound; Jersey, which uses the British pound (GBP) and the Jersey pound; Lesotho, which uses loti (LSL) and the South African rand (ZAR); the Isle of Man, which uses the British pound (GBP) and the Manx pound; Namibia, which uses the Namibian dollar (NAD) and the South African rand (ZAR); Panama, which uses the balboa (PAB) and the US dollar (USD); Tuvalu, which uses the Australian dollar (AUD) and the Tuvaluan dollar. The argument here is simply that about 10% of nation states use two currencies more or less effectively to stabilize their economy. This is a hybrid form of financing. We could do this better when introducing the official dual currency system described in this text. It would allow us to benefit from the advantages and avoid the disadvantages of the current dual systems.

Research on the nature of peace economies as opposed to war economies goes back to Keynes (1920) and Boulding (1978).

We are constantly falling into the same trap. From a game theory and psychological perspective, we are confronted with an asymmetric power dynamic, where the weaker partner remains necessary in finding a more stable solution overall (like the USA and Russia during the Cold War period). Such a scenario requires a different rationale to a symmetric power game, where competitive strategies might dominate. By contrast, in an asymmetric power game cooperation is more successful than competition. Here, inclusive measures outweigh exclusionary ones and positive reinforcement is preferable to scenarios of punishment.

In Reinventing Fire, Amory Lovins demonstrates that a shift from fossil energy to renewables can make our economy more efficient, peaceful, robust, resilient and productive (Lovins 2013). Extremely high hidden costs underlie the fossil industry, including oil price volatility, costs for the gasoline itself, military expenses to ensure the import of oil, blackouts and further indirect costs associated with additional health care costs etc. Lovins calculated that for the US economy alone, the benefits of this shift would be up to 5 trillion USD in savings and a boost of GDP of up to 158% over the next decades.

The prevention and containment of violence on the one hand and the costs associated with violence on the other are two partly opposed aspects. Both reinforce each other in a potentially negative feedback loop in which humans are always the losers. Within a peace economy, the multiplier, accelerator or enhancer operates in the opposite direction any time peaceful, cooperative behavior is exerted, reinforcing itself. The new financial instruments mentioned in this text can operate like a second peace dividend. Humanity received its first peace dividend in the 1990s at the end of the Cold War—an opportunity we squandered. Now we have a second chance. Incorporating the mechanism described here, generating a “peace-prone economy”, we will have lower military expenses, less centralized energy sources and a less planned economy. The SDGs form our road map and the financial mechanisms described are the tools required to achieve them. See Institute for Economics and Peace (2018).

This includes security services and prevention costs (military, internal security, UN peacekeeping, ODA, security agencies and private agencies), armed conflicts, and the direct and indirect cost of interpersonal violence and its associated negative multipliers. See Stockholm International Peace Research Institute (SIPRI 2019).

The Silk Road is an ancient trade route connecting the East and the West (Elisseeff 2000). More recently, literature has spoken of a “new silk road” linking China to the rest of Asia and Africa (Broadman 2006; Simpfendorfer 2009). Petrodollars refer to the USD earned by a country “through exportation of petroleum” (Vassiliou 2009).

We are talking about over 5000 loans and grants (including FDI debts, trade credits and directs loans) in over 150 countries. Over 50% of these lendings are hidden, which substantially distorts price allocation and debt analyses. See Horn et al. (2019);

Desjardins (2018), Luft (2016), Khanna (2019).

Securing America’s Future Energy (2018), ITC (2019).

The petrodollar system is built on a huge recycling strategy, where the international billing of any crude oil is contracted through OPEC in USD, which then in consequence is reinvested in OECD countries (military devices, corporate shares, buildings or state bonds). This closed loop guarantees that the USD will remain the leading global currency. This privileged leading position of the United States is expressed mainly in two figures: two thirds of all central bank currency reserves are in USD, and about 90% of trade contracted on the global exchange market involves USD (IMF 2019; Bank for International Settlements 2019). This has led to a high seigniorage for the American people. The US government would act in its own national interest to proactively fade out the petrodollar system and gradually install the green dollar mechanism instead. While the petrodollar system has close links to the industrial military complex, the green dollar system would boost the market for renewable energy in tandem with huge civil infrastructural and job programs worldwide.

From 1.9 billion to less than 740 million, with around 1 billion of those lifted out of poverty from East Asia and the Pacific. See Roser and Ortiz-Ospina (2017). In 1820 90% of the population was poor, while 200 years later 10% are poor in relative terms (Bourguignon and Morrisson 2002; UN 2018; World Bank 2018a). In absolute terms the amount of poverty has not changed significantly. If you are poor, you do not care whether 10% or 90% are not poor, as you yourself remain poor. When we subtract China from the equation, the absolute number of people who are poor has stayed roughly the same!

Monetary economics differ according to the aimed-for goals. For example, overcoming poverty and hunger often simply requires enough liquidity as a medium of exchange to link the goods and services in the disparate region with one another. For example, see the POI from Kenya by Will Ruddick and his team, who showed that in an underserved suburban slum, there is also a lack of national currency. A community-based currency (soft-pegged to the Kenyan shilling), operating as medium of exchange among the citizens, blockchain associated, with a negative interest rate and using cellphones without internet, can overcome these constraints (see for example Ruddick and Mariani 2013). More information on the work of Ruddick and his organization is available on the website www.​grassrootseconom​ics.​org

Parry (2003).

Catalyzing strategies for socially transformative leadership (WAAS, forthcoming 2020).