FINANCING THE FUTURE: Big money for sustainable development
It was the name of the panel of the Kiev International Economic Forum, which brought together leading Ukrainian and world speakers in the field of management, finance, communication, etc. in Ukraine.
One of them – Stefan Brunnhuber (Germany) – is a very versatile personality. Brunnhuber is the economist, the specialist in integral psychiatry, the chief physician of the clinic, the member of the European Academy of Sciences, Arts and Letters, the member of the Board of Trustees of the World Academy of Art and Science, the chairman of the University of Applied Sciences Mittweida, the full member of the Club of Rome.
In addition to his presentation at KIEF, Stefan gave a lecture at the DTEK Academy with the support of the UN Global Compact and Sustainable Strategies Institute (SSI). It was about the future of the world financial system. We invite you to get acquainted with some theses and ideas that Professor Brunnhuber wanted to convey to the Ukrainian audience in his speeches.
The world is undergoing systemic changes that radically force us to think about how we do business, conduct politics, and how we want to live together socially. People should ask themselves: are the rules of the game by which society organizes our economy applicable? How can we cope with the global challenges?
Today there are such three main challenges, and most of them are associated with human activities. These are climate change, the coronavirus epidemic and the dramatic death of species – a decrease in biodiversity on the planet. We are talking about a new geological era, the so-called Anthropocene. And all the crises of this era are associated with how humanity provides expansive economic growth.
NEW CHALLENGES – NEW GOALS
Crises destabilize world politics, economy and financial system. Therefore, in 2015, the UN countries formulated and adopted as a guide to action 17 goals of interrelated sustainable development. Achieving these goals should reduce the instability of the planetary system as a whole, make our world safer and more predictable.
However, the implementation of these goals will require considerable resources. According to experts, for several decades, mankind will have to spend about $ 5 trillion annually to eliminate or neutralize the negative consequences of the Anthropocene. The amount, of course, is rather big. However, abandoning the implementation of the sustainable development goals, obviously, will cost humanity much more.
GO BEYOND THE FINANCIAL TRADITION
We need a lot more finance and markets, but they need to be organized differently than they are now. We have great potential in the private sector, on the one hand, and in a strong public sector, on the other. If we are to cope with serious crises and the aftermath of their shocks, we must reconcile the interests of the private and public sectors, harness and combine both potentials.
Accordingly, we need to look differently at how the global financial system functions. In traditional financial policy, we cover existing pricing with taxes and duties and use them to fund public goods or consumer goods. Obviously, such a model will become less effective during serious crises. Markets and finance are very volatile today and are unlikely to become a source of resilience on their own.
THE NEW ROLE OF CENTRAL BANKS
In addition to taxes and debt, the third option for financing government tasks is central banks. During the financial and banking crisis, politicians are actively using this tool to save the euro. Central banks, on their own initiative, create liquidity and provide it to banks for lending purposes. It leads to the expansion of the balance sheets of central banks and to the fact that some of these funds may have to be written off sooner or later.
But it wouldn’t matter if central banks provided us with liquidity to fund commons. For example, in projects and technologies that serve the goals of sustainable development. If you make money available and invest wisely, then you will no longer just pump more money into the economy, but you will expand the radius of stability and prosperity, will become less vulnerable to crises, solving future problems. We have the technological capabilities and scientific knowledge to solve the world problems in the next 15 years. We do not have enough money and purchasing power.
TIME IS MONEY
We are in a paradoxical situation: everyone agrees that the Sustainable Development Goals need funding, but no one has explained where the $ 5 trillion a year will come from? If we extract this money from the economy exclusively through taxes, it will collapse. This redistribution method is too slow and the volumes are too small.
We will need three generations to achieve our goals. It means that in poor countries, only the grandchildren of today’s children will be able to go to kindergarten. In fact, we do not have time – the goals must be realized until 2030, which means that we need to start it right now.
Only central banks are now able to create additional liquidity quickly. But how do you ensure that this liquidity is directed exactly where it needs to be? Until now, it has also encountered certain problems, because emission money does little to help, for example, the development of the real sector. In addition, there is a global problem of corruption.
BLOCKCHAIN AGAINST CORRUPTION
The solution may be for central banks to create additional liquidity “in a new way”, in some way which is different from the traditional one. For example, at the European level it is possible to issue “green euros” – parallel money for certain and very specific purposes. They will go into the right hands and exactly where we need to. We can use digital blockchain technology for it.
Take, for example, the 14% of Europeans who still live below the poverty line. In digital format, on a mobile phone, they can receive a daily amount of money that will support their existence. It will end poverty in Europe in less than 18 months.
This reallocation eliminates corruption because digital security is built into the blockchain. It is the so-called “smart contract”. Using it, you can only buy certain things: food, clothes and notebooks for a student, but you cannot buy alcohol, cigarettes or weapons.
The blockchain can be controlled, so money laundering is impossible. In this way, we can finance sustainable development without fear of corruption. In the common European money supply, for example, 7% of the added value will be converted into electronic “green euros”. Everything that can be bought is defined by the UN Sustainable Development Goals. Technically, it is quite feasible, digital payment systems are known that already exist in a similar form.
The difficulty here is not technological, but psychological: we will have to get used to two payment systems that exist in parallel. Traditional money will be supplemented by cryptocurrency issued by central banks. So, thanks to the additional liquidity created by the blockchain, we will be able to realize the goals of the UN in the lifetime of this generation.
All of it can be accomplished in less than 6 months if the 6 largest central banks agree to create a parallel, optional complementary currency that generates the $ 5 trillion notes annually to fund our future.
DIFFERENCE FROM BITCOIN
An alternative monetary ecosystem with additional digital currencies will address the challenges posed by the existing system. It is a more flexible, fair and sustainable approach. Many central banks have already started developing digital currencies using so-called blockchain technologies. They should not be confused with Bitcoin, which is a highly speculative, highly volatile and technically imperfect old-timer of cryptocurrency.
It has a lot of negative sides. The Green Euro is embedded in a digital contract protocol that automatically restricts its payment options to sustainable use: you can use it to fund climate investments, but not for weapons or corruption. As a result, we will have two currencies that are in positive competition with each other: the regular euro and the growing green euro.
It’s like riding a bicycle, when two wheels are always better and safer. Of course, some crises will be inevitable, but many of them we can completely avoid. The new financial system can provide us with significant help in adaptation. If we, having identified planetary risks, begin to hedge them properly, we will significantly reduce the overall level of uncertainty, reduce the dependence of humanity on chance and necessity.