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2021 | OriginalPaper | Buchkapitel

2. Beyond the Mantra of Traditional Finance: Significance and Limits of the Conventional Approach

verfasst von : Stefan Brunnhuber

Erschienen in: Financing Our Future

Verlag: Springer International Publishing

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Abstract

Modern finance has profoundly influenced almost all aspects of human society and every aspect of our personal lives. To some extent it has become the basis of all economic decisions and investment strategies, social and ecological programs and even political decisions. Combined with new technologies, finance has become both the single most beneficial and the single most detrimental factor affecting the planet and our future. The 2008 crisis in particular revealed unanticipated but significant limitations to our financial system, which prevent us from better understanding and steering finance for the benefit of humanity and our planet. These limitations are most evident where global commons are concerned. One of them is the idea of the rational market and its agents as possessing a utility-maximizing function.

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Fußnoten
1
The 2008 crisis was on the expensive side, costing over 10 trillion USD to repair. This includes 40% in lost output, 40% losses in asset values and 20% in banking write-offs (Otte 2019). Traditionally we have spent a huge amount of effort and resources to regulate and stabilize a fuzzy and fragile monetary system. The reality is that the real economy is facing additional costs of up to 2% and the financial sector of up to 20% for these regulatory efforts. And each time there is another crisis, humanitarian and environmental projects fall off the cliff. We should learn to dance with the system instead.
 
2
See Kuhn (1962).
 
3
P.A. Hall (1993) took up this idea, applying it to economic and policy procedures, differentiating between first-, second- and third-tier changes. In this explanation, first-tier reflects normal policy changes, second-tier moderate changes and third-tier a paradigmatic shift.
 
4
One of the remarkable characteristics of the monetary system is that over time it has become more and more subtle and less material, as well as more and more democratized in the sense that more and more people are benefiting from it: from regional barter to bank accounts, to credit lines, to global fundraising and crowdfunding, to microcredit, to electronic payment systems, to regional currencies and cryptocurrencies.
 
5
See Jacobs (2016); Jacobs and Slaus (2012).
 
6
Historically we can argue that it was not the Industrial and the French Revolution that triggered the major divergence between Europe and the rest of the world, but innovations in the financial sector, namely paper money, the credit creation process and the fractional money creation process, which were inaugurated by the Swedish Reiksbank and the Bank of England in the second half of the seventeenth century. These inventions enabled human-centered wealth creation, entrepreneurship and both private and corporate planning and investment that were not possible before.
 
7
The OECD defines human capital as “the knowledge, skills, competencies and attributes that allow people to contribute to their personal and social well-being, as well as that of their countries” (Keeley 2007). At the bottom line, unemployment or underemployment in a society reflects this society’s inability to make full use of each citizen’s potential. However, unemployment is not a natural law, but an artifact of the chosen economic system. Each economic transaction sooner or later leads to some sort of human activity and an associated job, otherwise these economic transactions would have been useless to begin with. The equation is the following: assuming 4–5 trillion USD additional liquidity with a multiplier of 2 and a 40-hour workload per week, 2 weeks of sick leave and 4 weeks of holidays with a 5-day working week. With an hourly payment of 8.50–14.00 USD, 350–500 million full-time jobs can be generated. If we further assume 170 million unemployed and 140 million underemployed people globally (ILO 2019), this would match the volume required to finance the SDGs. Not to mention that there are regional differences in purchasing power.
 
8
Most of the components for change were available already, with one exception: by 1820, human societies had invented the wheel and the printing press and were able to handle fire. We had nation states in place, a banking system and taxation. Mathematics, astronomy, religion, music and arts and knowledge of the human anatomy had been established. Copper, iron, wheat, meat, vegetables and fruit, bread and butter were available too. Most components of daily life were there. Despite this, until 1820 human conditions had not changed very much for centuries if not millennia. Human life remained the same from birth to death and societies as a whole evolved according to a so-called Malthus cycle: economic growth was triggered exclusively by demographic factors. But around 1820, roughly 30 years—just one generation—after the French and American Revolutions, something astonishing happened that unleashed a whole new process different to anything seen before in all of human history: the social empowerment of individuals to use their critical minds, their creativity and new forms of social cooperation. This human-centered approach basically changed everything.
 
9
De Grauwe (2019).
 
10
This also called the Goodhart rule. For every regulation implemented, there will be an innovation and efforts to overcome it, rendering the initial regulation next to useless (Goodhart 1984, 2008; Freeman and Soete 2009).
 
11
See Kahneman (2011).
 
12
Within a Pareto optimum, any investment in a (non-excludable) common good, whether financed through fees, taxation or philanthropy, is a form of goodwill or charity made to appease guilt that causes suboptimal allocation and inefficiencies, as underfunded commons lead to suboptimal yields in the private and state sector. We will return to this issue in greater detail in Chapter 5, as this argument is significant for a better understanding of the relevance of a dual currency system.
 
13
See Crutzen (2002); Crutzen et al. (2011).
 
14
See Rockström and Klum (2016).
 
15
See Eichengreen (2014); Foster and McChesney (2012); Friedman (2016); Galbraith (2014); Gordon (2016); Hansen (1939); Koo (2015); Krugman (2014); Rogoff (2015) and Summers (2015).
 
16
We need to admit that we have already lost about 30–40 years in this whole debate. In 1990 it would have been possible to steer towards a different future. After the collapse of the Soviet Union, the world community would have had the chance to utilize the military expenses associated with the Cold War to achieve greater peace, fairness and sustainability on this planet. But instead of using this “peace dividend” for good, the world decided to sign up to the Washington consensus (Williamson 1993), which pursued greater liberalization, privatization and deregulation. We should not repeat the same mistake—privatizing, deregulating and liberalizing the world. The result would be to privatize all gains while society as a whole operates as a backstop, making all losses public should a failure occur.
 
17
Here, psychologists refer to so-called “confirmation bias”: we simply reconfirm what we already know, find only what we see and see only what already has been done in the past. Some scholars call this bias one of the most powerful and misleading forms of thinking and concluding (see Oswald and Grosjean 2004; Wason 1968).
 
18
The historical Marshall Plan (European Recovery Plan) had a volume of 13 billion USD in 1948. 10% of this was invested in Germany (Hogan 1989; Sorrel and Padoan 2008). Translated into today’s money, the volume would need to be more than 10 times larger, at least 130 billion USD, and the transfer sum would be 13 billion USD (Bureau of Labor Statistics 2019).
 
19
The global Marshall Plan (Gore 1992), a prominent initiative, will only work if the whole financial system remains relatively stable and all actors are able to rely on the expected transactions. This was true after WWII for Germany and also to a large extent when the EU enlargement to the East occurred (Sorel and Padoan 2008). However, the current financial framework operates on highly speculative ground, with offshore havens operating globally (representing around 10% of world GDP according to Alstadsaeter et al. 2018), recurrent currency and banking crises, besides an ever-increasing dark pool and shadow banking sector, high frequency trading, fraud and corruption. Taken together, these factors make reliably sourcing the funds to finance our global commons a near impossible endeavor.
 
20
Banerjee, A. V. and Duflo, E. (2019).
 
21
There is a strong argument that focusing on the 2DS and whether global warming is man-made or nature-made is partly misleading. There are at least four other reasons why we need to leave the fossil age behind, beyond its impact on heating up the atmosphere: first, a more decarbonized world that is more dependent on renewables will be healthier for all of us; second, the shift towards a non-fossil economy is cheaper, especially when we tag the price for all the negative externalities involved; thirdly, this new energy source is available in unlimited form (sun, water, wind and geothermal energy) and there will be no “peak energy” for humans; and fourthly, renewables are decentralized and available to everybody. This reduces the potential trading of and military conflict over energy sources and provides a kind of “peace dividend” for the world. In conclusion, even if one is skeptical about global warming and its man-made nature, there are more than enough other arguments to support the shift towards a non-fossil age. For the current discussion, see especially Randers et al. (2018); my thanks to Philipp Schöller for personal comments and remarks on this topic.
 
22
This can be called a volcano effect: imagine a volcano eruption affecting 800 million people on the planet. Within a short period, this population would be living below the poverty line, without shelter, water, sewage, power, limited healthcare and an estimated damage equivalent to 2.3 trillion USD. In such a situation, how is a government to raise the necessary funds? Taxing the existing economy to redistribute money to the 800 million people is not an option. Rather, the 2.3 trillion USD need to be newly generated to finance emergency measures and rebuild infrastructure. Would this measure be inflationary? Not necessarily, it would simply boost the world economy. And it would rebuild the lives of 800 million people back to where they were the day before the volcanic eruption occurred. If there were a tsunami or an asteroid impact we would certainly do the same. However, in the absence of a worldwide catastrophe affecting 800 million people, what would we do? This describes the situation of the “bottom billion”, and the answer is that we should do exactly the same. Creating the 2.3 trillion USD in the proper way would boost the world economy with green technology.
 
23
World Bank Indicators (2015).
 
24
Citigroup (2015); Lewis (2014); McKibben (2012). If we further consider that the indirect (social) costs of the fossil economy are about 10 times higher (4.9 trillion USD), then it becomes obvious how difficult it will be to detach the insane relations between fossil energy and direct and indirect subsidies. In this calculation, the world community as a whole is subsidizing every ton of CO2 with about 150 USD. The exact social costs of carbon depend on the discount rate put on these future costs. The higher that rate, the more the future is discounted or devaluated. Under the Obama administration the rate was 3%, under President Trump it has been increased to 7%. See the informative contributions of Ottmar Edenhofer (2015), Carney (2015), and McGlade and Ekins (2015).
 
25
To be more precise: an estimated third of oil, 50% of gas and more than 80% of coal reserves must remain unused in order to meet the Paris Agreement. See McGlade and Ekins (2015).
 
26
Modeling (for example DICE; IAM, UN, Kompas, Stern, IPCC, SSPs) reveal a high range of costs, ranking from 2% of GDP until 2100 to 40% over the same period. This is among other factors due to the implemented discount rate (ranking from 1.5% to over 5%). The higher the rate, the higher the costs we have to bear today. It seems to be next to impossible to come to a consensus for political decisions. The point we would like to make is the following: we don’t know the cost (exactly), due to non-linear tipping points. But we know that regardless of whether it is only 2% of GDP or far more, a low carbon economy can generate more jobs, is healthier for the planet, renewables will be cheaper, and as renewables are more decentralized than fossil energy, it will generate a “peace dividend” for all of us. See for the debate: Kompas (2020); Stern (2016) or Nordhaus (2019).
 
27
We can look at the issue from a time perspective. How highly do we value our future? In psychological terms, a present benefit weighs more than a future one. If we have to forego something now in order to gain something in the future, our instinct is to devalue the future and seek instant gratification. Representative studies from 76 countries covering 90% of the world population reveal that our future is discounted significantly. When asked to postpone a present benefit for one year, study participants demanded a return up to 50% higher. In numbers: how much do we think should we be reimbursed in 10 years’ time in order to give up 1000 USD today? Empirically, it is 329,000 USD on a global average; when postponing the benefit 20 years, this sum increases to 3 million USD. The willingness to postpone a present desire for a future one is vanishingly small. Any policy that is built on renunciation, sanctions or punishment in the present in order to gain more benefit, gain or profit in the future will fail. People are simply not prepared to pay that price. Accordingly, we should build our strategy for a common, more sustainable future on different monetary incentives than the ones we are currently operating with. And the TAO of Finance provides precisely these different incentives (Falk et al. 2018).
 
28
Sachs (2015), Orlov et al. (2018), Claringbould et al. (2019) and Heine et al. (2019).
 
29
The New York Times special issue Losing Earth recently demonstrated that we have lost decades of constructive climate policy (Rich 2018). William Nordhaus (2018a) calculated in the DICE model that a 2DS is unfeasible as it would require “extreme virtually universal global policy measures”.
 
30
See Knight (1933). Harmonizing EU Regulations is not a goal in itself, but a tool to achieve something else. The more we level up regulation on an EU level, the more we streamline the economy and social security systems. This requires huge regulatory efforts that make the system more efficient but less resilient at the same time. Any time there is an asymmetric shock anywhere, it affects other countries unintentionally. For example, a capital market union requires a harmonization of the domestic insolvency law, which is different in each EU country (the discharge period in Germany is three to six years versus one year in other countries, and follows different liability rankings). The same is true for any EU unemployment security. Currently each country is financing this asset in a different way, requiring a huge amount of political regulatory effort. Take the SBBS (Sovereign Bond-Backed Securities), which are bonds that solidarize domestic risks and liabilities, normally issued to create security for society as a whole. In short: the harmonization of regulatory efforts is not impossible, but remains partly unviable or infeasible and puts additional constraints on the system dynamic (ESRB 2018; Esser et al. 2013; McCormack et al. 2017; Véron and Wolff 2016).
 
31
In particular, the bail-in regulations since 2016 have generated a liability cascade that is new for the banking system. Traditionally and historically, banks have been saved by governments when they got into trouble. Following the 2008 crisis, the governments have little to no leverage to do so because of increased public debt. The new bail-in strategies basically affect billionaires and ordinary people with small assets in a similar manner. They are both sitting in the same boat and will potentially lose their wealth when the next crisis occurs. New technologies beyond the given banking intermediaries (mainly distributive ledger technologies), alternative investment strategies (tangible assets) and new financial engineering (hybrid swaps, parallel currencies, impact funding) are a rational and expected consequence of these bail-in regulations. See European Commission (2016).
 
32
Björklund Larsen (2018).
 
33
Several dozens of proposals on different taxation schemas are available: progressive income taxation, wealth taxation and heritage taxation are the most prominent (see for example McCaffery 1994; Schenk 1999). They are all valid, but are chronically difficult to realize in a democratic political system. For example, if we decide to implement a progressive income tax, we risk those with high incomes leaving the country (Piketty and Saez 2013). If we tax wealth, we are confronted with an endless list of corporate shares that are affected by this tax. This can easily end in a higher price for the consumer, greater unemployment and perhaps lower tax efficiency. These are all forms of regulating, taxing and redistributing money within the given system. If we had a second parallel system in place, at the same time, our leverage to finance our future would increase rapidly and significantly. For the debate see also Saez and Zucman (2019).
 
34
The most prominent ones are W. J. Nordhaus on carbon tax and the DICE model: the actual price of a ton of CO2 is between 3–10 USD. The social costs for any additional ton of CO2 in order to remain below the 2DS are over 230 USD. Nordhaus proposes a Climate Club and classifies the CO2 load as a club good. EU, NATO or multilateral agreements would create such “clubs”, in which members pay dues and can be excluded and non-members are penalized through tariffs on their exports to the club. Club members additionally have economies of scale or public good. See for example Nordhaus’s Nobel prize lecture (2018b).
There is another proposal. Take the numerous calculations demonstrating that if we tax international currency transactions (Tobin 1978) or if we reduce military public spending (Klein 2015) or if we tax the upper 0.0001% ultra-high net-worth individuals (UHNWI), we would gain a certain amount of liquidity that then could be redistributed towards global common goods, such as ending poverty, hunger etc. None of these approaches are wrong, they all have their point and they are all well calculated. But there are several biases at work: there is no global governance that could implement a yield from any global economic activity, and tax procurement remains national. Most taxation, once set up, requires huge regulatory effort to compensate for its negative social spillovers. The current price of CO2 per ton is an example. We would need an increase in price to over 200 USD globally to ensure a change of the magnitude required to remain within the Paris Agreement. Such a price tag would require tremendous payments to individuals with low incomes, who could not afford to pay the carbon tax. Indeed, taxation is not impossible, but it leaves the dynamic of the current production and consumption chain untouched. The implementation of a dual currency approach changes the playing field: those with a high income are responsible for their asset investment themselves and global commons are financed through different monetary channels, some of which are explained in this text. See also Lietaer et al. (2012).
 
35
Already discussed in Stern (2006); see also Heal and Schlenker (2019); European Commission (2018) Action Plan.
 
36
The idea goes back to Pigou (1920), who first introduced environmental taxation as a way to internalize social costs caused by negative externalities. Furthermore, William Nordhaus (2018b), who received the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2018 for his macroeconomic investigations taking account of climate change issues, mentioned the impact of carbon taxation in his Nobel lecture.
 
37
See Carbon Market Watch (2017). However, in the period up to 2017, only 5 trillion of the estimated 28–100 trillion USD carbon bubble was devoted to divestment (Arabella Advisors 2016; Citigroup 2015; Lewis 2014). If we take into account the fact that we currently have around 8 trillion USD in cash, 17 trillion in debt yielding a negative interest rate, and over 25 trillion USD invested with and interest return of less than 1%, there is plenty of private money in circulation (Aigner 2019; Desjardins 2017; Van der Knaap and De Vries 2018).
 
38
If we want to rely on the steering effect of any CO2 taxation schema towards a low-carbon economy, we need to be aware that the CO2 tax is a general-purpose tax. Unlike taxing alcohol or cigarettes, issuing a speeding ticket and fining the wrong disposal of waste, fossil energy is part of almost every product or good along the value chain. This means that avoiding CO2 requires an alternative strategy. Under the current energy mix in OECD countries, a CO2 tax would have next to zero steering effect. The upper class would simply pay the bill and continue to follow their consumption pattern, while the lower class would be reimbursed through the tax, but have little leverage to change their consumption pattern. The middle class will be affected most by the CO2 tax, but part of their initial offset will simply be compensated by multiple rebound effects. In net, this taxation program would create a huge and costly administrative apparatus with little net effect on the climate.
 
39
Parry et al. (2014).
 
40
Korzeniewicz and Moran (2009). For accurate numbers on the global wealth distribution, see Shorrocks et al. (2018), or Credit Suisse Research Institute (2018). To note: subsidies and taxation—as two major forms of regulation—both can distort the given price equilibrium in a free market economy, mainly due to crowding-out effects, lump-sum taxes and deadweight losses (Freedman et al. 2010).
 
41
Empirically, the CO2 load in the atmosphere has increased in absolute terms for 50 years and oil prices have been relatively stable since 1970 (!). In fact, regional withdrawal from the fossil energy supply can cause a so-called “green paradox”, as mentioned above in the main text. This describes the undesirable effect that we are unable to cancel out the global supply of fossil energy with a policy that encompasses only saving energy. A regional reduction of demand by saving energy thus lowers global market prices. This could make things worse. In figures: Germany creates 2.3% of the global carbon footprint. China and India generate 60% of their power supply through coal, Poland 80% and South Africa 88%. If Germany were to withdraw from coal, these countries would be at a competitive advantage, leading to even a higher consumption of coal and a greater carbon footprint overall. Resource owners will pre-emptively extract their resources even faster to get most of their business today, as their future business model is threatened. Within the current environmentally friendly policy framework, we aren’t slowing down climate change, but accelerating it. The “green paradox” can be overcome, but it requires the combination of an “exit” strategy with hybrid swaps, parallel currencies, smart impact funding and a variety of public-private partnership contracts. See in more detail Sinn (2012); for an example of greenhouse-gas accounting see Kander et al. (2015).
 
42
See Dixon (2003, 2006, 2019).
 
43
Three of the more hidden forms of negative externalities are land grabbing, virtual water and the import of CO2: in Europe, the current annual rent for an acre of arable land ranges from 20 EUR (Latvia) to 320 EUR (Netherlands), while in Africa arable land can be leased for less than 0.5 EUR per acre per year over a duration of 99 years (Bloomberg 2019; Eurostat 2018). Around 40 to 200 million hectares globally have been affected by land grabbing, and more than half of these are located in sub-Saharan Africa (Batterbury and Ndi 2018; Hall 2011; Oxfam 2011; Rulli et al. 2013). Up to one third of arable land in Africa is affected already. Globally, over 4 million hectares of land are used to produce goods that then are exported. We have enough robust evidence showing that the production of food is highly water-sensitive. For example, 1 apple requires 80 l, a cup of coffee 140 l, a hamburger 2400 l, a portion of crisps 185 l and so on (Hoekstra and Chapagain 2006). If such products are produced in countries exposed to water stress, mainly in the southern hemisphere, this amount of water is then lacking for local communities. The same is true for the CO2 load. While OECD countries have been able to reduce their CO2 burden nationally, this has taken place mainly by exporting the production of goods and energy. The products imported to supermarkets in OECD countries should carry the hidden costs of land grabbing, water depletion and an increased carbon footprint. See also Hoekstra and Hung (2005); Liu et al. (2017).
 
44
Taxonomy is key to ensuring private equity impact funding. There are initiatives by different stakeholders (NGOs, politics, the corporate world, science) with different interests and objectives, all of which have to be reconciled. Essentially, we require a matrix that allows us to evaluate, measure and compare the entire expenditure of human economic activities. This includes a total cost analysis (TCA) upstream and downstream along the value chain, integral accounting, improved comparability for mergers and acquisitions, measuring and evaluating the impact not only on profit, but on human wealth in general. In addition, we need a relative benchmarking for different sectors (like aluminum, cement, agriculture) and between sectors, facilitating comparability as well as improving corporate decisions (de-risking) and public awareness on different levels (OECD, EU, G7, G20). Finally, we need an enabling environment for harmonized regulation and taxation that would set up a new global accounting system for every agent involved. Initiatives such as these that seek to better incorporate natural, social and human capital have been around for at least 30 years. However, most of them already fail at the stage when the different stakeholders provide completely different views on the topic. For example, international accounting firms already have different opinions on how to evaluate and measure the upstream impact of child labor or water pollution on the corporate balance sheet. We might end up with three findings: relative banning, relative benchmarking and single case-to-case approaches.
 
45
Initial Public Offering (IPO) has decreased continuously over the last 15 years from 7000 in 2004 to around 300 in 2019. In addition, corporations are more interested in recalls of their own stocks than in investing in long-term projects, as dividends are higher than the potential profit retained. Both aspects lead to decreased opportunities for conventional investors to become involved. As most of the money is held by institutional investors, whose clients are the baby boomer generation, the likelihood of reinvesting in risky alternative assets is low. This is one reason why we need a strategy that combines de-risking with new investment strategies.
 
46
See for further examples and calculation Randers et al. (2018), who discuss the acceleration of renewable energies and the productivity of the food chain, reduction of inequality and the investment in education, family planning and health; or the new Club of Rome Climate Emergency Plan (Club of Rome 2019), which marks carbon pricing and exit strategies, women’s education, exponential technological innovation, circular economy, regenerative land use and higher material efficiency among others.
 
47
Mudaliar and Dithrich (2019).
 
48
Bozesan (2020); for updated and more precise figures see the comprehensive report of Henderson et al. (2019).
 
49
Private equity funds historically have a high yield ranging between 19–25% (Kaplan and Schoar 2005) annually. In a world where GDP is growing by 2–3% (World Bank 2019) but private investors demand 10 times more, this revenue has to come from somewhere. In fact, most of it comes directly or indirectly from the lack of financing for public goods. This means that instead of funding public preschooling and collective health care, protecting against pollution, eradicating poverty and hunger, and averting the collapse of biodiversity, the money instead goes into the private sector, where HNWI (High Net Worth Individuals) realize additional returns. A 19–25% return for private equity, even with additional impact funding, is an unrealistic scenario in a world where the wealth gap is increasing and public common goods are underfunded. Private equity is a small part of the solution, but it is not the solution.
 
50
If market solutions are presented as the main answer to social problems, we might end up with what Anand Giridharadas (2018) calls the “winner takes all” effect: the “giving back” or “pledge campaigns” of the elite are well meaning but remain non-starters. Here, we need to take two aspects into account: first, the social and ecological damage caused by the elite when building their fortunes. Second, the existing mechanisms that fail to address the root causes of the problems. Philanthropy and charity are not bad things, but we should be aware that they treat symptoms, not causes, and also serves to keep the system as it is instead of changing it. The global net result of these campaigns might be still negative. They will help to appease the consciences of the elite, but not improve the lives of people in the future.
 
51
200 fund managers globally manage roughly over 47 trillion USD in assets, which is more than 50% of the global GDP (Investment & Pensions Europe 2019). So, if we want to gain momentum for a change towards a low-carbon economy, we need to get these 200 fund managers in one room and tell them what to do.
 
52
This ex-swap asset might include a specific bonus program for the executive boards of the companies in charge of liquidating their own company and provide an alternative investment for the shareholder instead.
 
53
See Griffin (2017).
 
54
Aigner (2019); Ro (2015).
 
55
Private-public contracting allows a long-term perspective, especially in critical infrastructures such as energy, health, education, and telecommunications. In 2017 90 billion USD were contracted globally, down from a peak in 2012 of 140 billion USD. The World Bank advisory offers blueprints and guidance on how to contract private and public sector interests. However, the devil is in the detail. De-risking is the major issue, where both sides have to clarify who is going to take on the risk in the case of “force majeure”, such as natural catastrophes, terrorism or state failure. Who is the insurer of last resort? How to determine payments and who is fully and who is partly compensated? What is the very nature of the financial assets (bond, bank financing or corporate financing)? The International Center of Settlement on Investment Disputes (ICSID) associated with the World Bank seems to be just one institutional alternative among others. In order to de-risk the project for the private sector and make it bankable for the public sector, both sides have to give in: the private sector has to surrender its high yield expectations and its short-termism, and the public sector has to tackle corruption and bad public management. There is currently a tendency to partisanism and to advocate for private-sector money instead of public procurement. See Eurodad (2018); World Bank (2017).
 
56
World Health Organization (WHO), Unicef (2017).
 
57
The term co-financing is used especially in reference to international development projects such as those in developing countries (Asian Development Bank 2019). According to Law (2014), co-financed loans are characterized by a partnership between “commercial lenders, especially banks, [and] a government or a government sponsored organization.”
 
58
The ratio goes back to Tinbergen (1962). In order to achieve 5% economic growth in developing countries, 0.3% in private capital flow and 0.7% in official development aid (ODA) is required. The Harrod Domar equation specifies this further (based on Domar 1946; Harrod 1939). If we look more closely at the concrete and actual spending on ODA, we see that there is double use and double counting, including prioritizing domestic industry. Roughly one quarter of the 0.3% of GDI, which is only 50% of what has been approved (0.7%), is going into real ODA (OECD 2017). In addition, there is a constant negative net flow of money from the global South to the North. Whereas the global North transferred roughly the equivalent of 1.3 trillion USD to the South in between 1980 and 2012, developing countries lost about the equivalent of 3 trillion USD in the opposite direction due to interest payments, capital flight, corruption, miss-pricing of trade and income, and corruption (Kar and Schjelderup 2015; personal communication with Prof. Dr. Jan Kregel, September 2019, New York).
 
59
A short history of the first 1000 years of dual or parallel currencies reveals that for most of that millennium, dual currency systems were the standard, whereas a monetary monoculture was the exception. One of the two currencies was designed for long-distance trading (mainly backed up by a metal that had the additional function of storing value), while the second was mainly designed for local and regional exchange. This made for flexibility, but also created social asymmetries in exchange, often increasing transaction costs and generating economic rent. Any time these currency systems broke down due to unregulated money creation and/or unregulated convertibility, the societies started again with a dual system and not a monoculture. It is only in the last 100 years that a monetary monoculture has been favored exclusively. Taking the default design (lack of regulation) into account, at the beginning of the twenty-first century we now can do better. In light of new distributed ledger technology (blockchain-associated), a deeper understanding of the system dynamics of dual systems (resilience, anti-cyclical steering, cost savings due to the stimulation of regional economic activities), and more empirical evidence on the role of monetary regulation (price stability, convertibility and impact of regulatory efforts), re-establishing a dual currency again for the wealth of nations seems only natural. See e.g. Rössner (2012, 2018).
 
60
See the UN World Food Program as a first proof of concept. A smartphone interface with a biometric identification system prevents misuse and fraud. This creates greater security and privacy for the clients enrolled, as sensitive data are not shared with third private parties, like social media firms or banks (World Food Program 2017).
 
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The idea of a “citizen dividend” represents calls for a “social credit” system where commons are distributed equally amongst all citizens (Douglas 1924). An exemplary proposal for the “public channel” was given by Jeremy Corbyn in the UK. His “people’s quantitative easing” proposal aimed at spending newly created money directly on public infrastructure projects (Berry and Guinan 2019).
 
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Other proposals refer to a roll-over of state bonds to central banks, infinite credits without maturity, credits without interest, or credit lines that modify their conditions and facilities while rolling over from central banks to states and vice versa (Turner 2015). As convincing as all these arguments are, none of them address the resilience of a dual currency system and therefore stay within the given paradigm.
 
63
Dag Hammarskjöld Foundation (2019), Breitenfellner et al. (2019) and NGFS (2019).
 
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Metadaten
Titel
Beyond the Mantra of Traditional Finance: Significance and Limits of the Conventional Approach
verfasst von
Stefan Brunnhuber
Copyright-Jahr
2021
DOI
https://doi.org/10.1007/978-3-030-64826-8_2

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