Is our monetary system failing us? The book I mentioned last week, Rethinking Money: How New Currencies Turn Scarcity into Prosperity, suggests that it is. Here are some statistics:

  • The combined assets of the family that owns Wal-Mart equal those of America’s bottom 150 million people (out of a population of 325 million). The world’s eight richest people have same wealth as the poorest 50%, according to Oxfam.
  • Between 1970 and 2010, there were 145 banking crises, 208 monetary crashes, and 72 sovereign debt crises, according to the International Monetary Fund.
  • 80 percent of Americans report that they have zero in savings. This is nearly double the figure in 2007, just before the banking crisis.
  • The average U.S. college student is more than $25,000 in debt by graduation. According to the Institute of Fiscal Studies in 2017, the average student in England will graduate with debts of over £50,000. 

The authors, Bernard Lietaer and Jacqui Dunne, are not condemning money as such. They point out that the emergence of the financial system “produced remarkable advances, thrusting society out of the shackles of superstition and stagnant social order that had preceded it. It brought about the rigour of science founded in that which could be proven, rather than divine dogma. It enabled the individual, no matter how lowly his birth, to scale the heights of his unbridled imagination and keen ambition through learning and labour”.

Rather, they are saying it needs a rethink, and make a very compelling argument.

Here are a few ideas that they offer that you might find thought-provoking. I know I did.

1. They quote economics professor L. Randall Wray, who writes, “In all modern economies the government defines money by choosing what it will accept in the payment of taxes. Once it has required that the citizens must pay taxes in the form of particular money (for example dollars), the citizens must obtain that money to pay taxes. In order to obtain that which is necessary to pay taxes, or money, they offer labour services or produced goods to the government (as well as to markets). This means the government could buy anything that is for sale for dollars merely by issuing dollars.” In other words, a government doesn’t “need” to levy taxes to pay for its expenses. It can simply print more money. Rather, taxes are required in order to give value to money. Money needs to have a degree of scarcity in order to maintain its value, and that scarcity generates competition.

2. Interest charged on loans also depends on scarcity. As Rethinking Money says, “to pay back interest on a loan requires using someone else’s principal. In other words, not creating the money to pay interest is the device used to generate the scarcity necessary for a bank-debt monetary system to function. It forces people to compete with each other for money that was never created, and it penalizes them with bankruptcy, should they not succeed… it’s like a game of musical chairs in that there are never enough seats for everyone. Someone will end up getting squeezed out. There isn’t enough money to pay the interest on all the loans, just like the missing chair.”

3. This manufactured scarcity creates a never-ending push for growth, because borrowers must find additional money to pay back the interest on their debt. “Compound interest implies exponential growth in the long run, something mathematically impossible in a finite world.” And look at the consequences for entire countries of crippling debt: in the 1990s the developing world was spending $13 on debt repayment for every dollar it received in foreign aid and grants. By 2004, that number had grown to $20 on debt repayment for each dollar of foreign aid. Today the ratio is 25:1.3. This drove former President Obasanjo of Nigeria to state: “All that we had borrowed up to 1985 or 1986 was around $5 billion and we have paid back so far about $16 billion. Yet, we are being told that we still owe about $28 billion. That $28 billion came about because of the foreign creditors’ interest rates. If you ask me, ‘What is the worst thing in the world,’ I will say, ‘It is compound interest.’”

We can see the unintended impacts of this dash for cash on our ecological systems. The financial system promotes short term thinking, while nature conservation requires long term thinking. As interest rates transfer wealth from the have-nots to the haves, the have-nots become ever more desperate, so preserving forests and reefs becomes secondary to their pressing need for money.

At the same time, the competitive nature of money erodes reciprocity and community. Because of its intentional scarcity, it promotes a mindset of domination rather than partnership. In a world where there is never enough, only the fittest survive, with “fittest” meaning those who are best at maximising their own income, at everybody else’s expense.

Lietaer and Dunne are certainly not suggesting that we should get rid of conventional currency, but rather that we need more diversity in our financial systems to improve resilience, increase cooperation and promote long-term thinking. The present financial monoculture is too volatile and vulnerable, and is producing unforeseen and undesirable side-effects. It was a product of its time 300 or so years ago, and for a long time has worked admirably. But the world we live in now is very different, and our economic systems need to change with the times.

We already know the value of diversity in government and in corporate boardrooms. Now there is a strong case for diversity in our economic structures too. Put simply, our currencies need to get current.

“Our money system is structurally brittle. It doesn’t matter if you put a very clever guy or a stupid guy at the wheel. The clever guy will take half an hour to have an accident, and the stupid guy will take ten minutes.”

Bernard Lietaer












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