Dollar standard and the Anthropocene post-acceleration: An unseen relationship
Written by Ranulfo Paiva Sobrinho and Karla Córdoba-Brenes.
Abstract: Anthropocene post-acceleration (1950 to present) was strongly intensified by the current international monetary system, known as ‘dollar standard’. During the dollar standard system, central bank international reserve assets grew exponentially. This exponential growth triggered credit expansion in several countries since 1973 that caused economic bubbles which inevitably ended up in economic recession. During credit expansion periods, economic sectors increase their consumption as well as its pressure against biodiversity and ecosystems across the world, mainly in underdeveloped regions. Our Planet and we as humanity experiment the same process, over and over again, during the now frequent economic crisis.
Keywords: Anthropocene post-acceleration, Great Acceleration, Dollar Standard, reserve assets, credit expansion, blockchain technology.
Introduction
The term ‘Great Acceleration’ refers to the acceleration of changes in ecosystems, biodiversity and biogeochemical processes on the planet caused by anthropogenic pressure during the period from 1750 to present (Steffen et al. 2015a). The authors point out that the post-acceleration refers to a period from 1950 to actuality. Such changes are represented by a set of socio-economic and terrestrial system trends indicators derived from the International Geosphere-Biosphere Programme (IGPB), developed between 1999 and 2003.
These socio-economic trend indicators include the following: population, real GDP, foreign direct investment, urban population, primary energy use, fertilizer consumption, large dams, water use, paper production, transportation, telecommunications and international tourism (Steffen et al. 2015a).
And the trend indicators in terrestrial systems include: carbon dioxide, nitrous oxide, methane, stratospheric ozone, surface temperature, ocean acidification, marine fish capture, shrimp aquaculture, nitrogen to coastal zone, tropical forest loss, domesticated land and terrestrial biosphere degradation (Steffen et al. 2015a).
Charts referring to both socio-economic and terrestrial systems indicators can be consulted here.
As mentioned by Steffen et al. (2004) the Great Acceleration of the current geological epoch, known as Anthropocene (Crutzen Stoermer, and 2000), intensified from 1950 triggering serious problems to biogeochemical cycles that are responsible for the maintenance of life on this planet (Steffen et al. 2015b).
“One feature stands out as remarkable. The second half of the twentieth century is unique in the entire history of human existence on Earth. Many human activities reached take-off points sometime in the twentieth century and have accelerated sharply towards the end of the century. The last 50 years have without doubt seen the most rapid transformation of the human relationship with the natural world in the history of humankind.” (Steffen et al., 2004: 131)
According to Steffen et al (2015a), developed countries has been the ones who contributed the most to this ‘Great Acceleration’:
“Furthermore, by treating ‘humans’ as a single, monolithic whole, it ignores the fact that the Great Acceleration has, until very recently, been almost entirely driven by a small fraction of the human population, those in developed countries.” (Steffen et al., 2015a)
We agree with the authors. In this article, our goal is to contribute to this discussion by introducing new information that may assist in the understanding of the Great Acceleration dynamics and its unseen relationship with the current socio and ecological challenges we face as humanity.
The dollar standard intensified the Anthropocene post-acceleration
We argue that the Anthropocene post-acceleration intensified after 1973, when the main world economies began to develop their economic activities under the current international monetary system, the ‘dollar standard’. The dollar standard system is completely different in nature from its predecessor — Bretton Woods international monetary system. The main differences refer to the nature of money (what is considered money), central bank reserve asset composition (Box 1) and credit expansion process (Paiva Sobrinho and Romeiro, 2016a).
Box 1 — Reserve assets
Reserve assets are external assets that are readily available to and controlled by monetary authorities (central banks) for meeting balance of payments financing needs, for intervening in exchange markets to affect the currency exchange rate, and for other related purposes (such as maintaining confidence in the currency and the economy, and serving as a basis for foreign borrowing) (IMF, 2004).
During the extinct Bretton Woods system (1944–1973) gold was money. Central banks international reserve assets were composed mainly by gold and currencies backed by gold and, in a minor proportion, of special drawing rights ‘SDR’ (IMF, 2004). During the year in which this international monetary system was active, credit expansion was limited by the availability of gold (a finite, physical resource). Since gold supply was limited, so it was the credit expansion (Duncan, 2005). This changed dramatically with the dollar standard introduction.
During the dollar standard system, money is a type of IOU (I Owe You) and there are three types of money: currency, bank deposits and central bank reserves (Bank of England, 2014). To understand why this definition of money is dangerous, see Box 2.
Box 2 — An unbiased definition of money
Paiva Sobrinho and Córdoba-Brenes (2016) consider the Bank of England (2014) money definition as biased, designed to benefit the financial institutions business. Using their definition of money as a type of debt (IOU = I Owe You) and identify just three types of money: currency, bank deposits and central bank reserves, is equally absurd as to define fruit as follows: “Fruit is a type of banana and there are three types of fruits: apple banana, Cavendish banana, and cooking bananas”.
We know that definition of fruit is absurd because we are aware of the existence of oranges, guava, watermelon, and many other types of fruits. Unless you are aware of different types of money used around the world and throughout history, you might not realize that definition of fruit is absurd (as well as the definition of money as IOU).
Certainly, if we adopt the definition ‘fruit is a type of banana’, the banana industry would be very happy since it would detain the oligopoly of fruit production and it would dominate the international market.
To solve Anthropocene’s challenges, we need a money definition without bias.
The authors propose the following definition: ‘money is an agreement made by a community to accept a standardized item that serves, at least, as a medium of exchange’ (Paiva Sobrinho and Córdoba Brenes, 2016).
In the dollar standard, the central banks reserve assets are composed by: foreign reserves, securities, SDR, equities and in minor proportion, gold. Once reserve assets in the dollar standard system were relatively much more abundant compared with Bretton Woods ones, credit expansion increased at unprecedented levels, see Figure 1 and 2, respectively. To understand how the increase of reserve asset triggers credit expansion, consult (Paiva Sobrinho and Romeiro, 2016a,b.).
The exponential (or quasi exponential) credit expansion curve is observed in almost all countries in different periods. Japan economy credit expansion curve behaves exponentially from early 1960 to 1990 (Figure 3), see Paiva Sobrinho and Romeiro (2016b). Euro economy credit expansion curve behaves quasi exponentially from 1998 to 2008 (Figure 4). Chinese economy credit expansion curve behaves exponentially from 1985–2016 (Figure 5). Brazilian economy credit expansion curve behaves exponentially from 1994–20012 (Figure 6).
Exponential (quasi exponential) curves present in graphs 2 to 6 are also present in other countries and economic sectors (i.e. household, government).
The dollar standard pattern
As a result, we can describe dollar standard pattern as:
- Period of accelerated credit expansion issued by financial institutions (private and/or governmental). During this period, the indebtedness level of household, business, and governmental sectors increases rapidly. Their high debt reaches a level in which is really difficult to pay off the interest on debts.
- Credit slowdowns by private institutions due to problems related to a higher level of indebtedness in the main consumer sectors of the economy (business, government and families). During this phase, private banks suffer from nonperforming loans and generally are bailout by central banks.
- Periods in which the main government of a country: a) increases its debt trying to increase the level of economic growth, or, b) adopt austerity policies.
- After the period of reduction in the indebtedness level of the main economic sectors, it can or cannot observe a credit expansion issued by financial institutions. For example, after deleverage period Japan economic credit expansion did not increase (Japanese government and other institutions launched massive experiments with complementary currencies to solve their socioeconomic problems).
For more details see Paiva Sobrinho and Córdoba Brenes, 2016; Paiva Sobrinho and Romeiro, 2016a,b; Milne, 2009; Duncan, 2005; Koo, 2015.
The goal of the credit expansion by the banking system, is to finance activities related to both economic growth and speculation (Werner, 2014). This accelerated credit expansion caused periods of economic growth followed by economic crisis (Duncan, 2005). Besides, credit expansion increases pressure over ecosystems and vital biogeochemical cycles on Earth.
As we already pointed out, financial crises generally occur when individuals, families, businesses, and governments go into debt until the point they are unable to pay their commitments. As a result, not only families, businesses, and governments become excessively indebted, but unfortunately, we become in debt with our ecosystems and with our planet, mainly because credit expansion facilitates overconsumption during the economic booms that antecede financial crises.
According to Global Footprint Network’s National Footprint Accounts (2015), we are in debt with our Planet. It has been this way since the 1960s. The average biocapacity of our planet today is 1.7 global hectares per capita, but and our average Ecological Footprint ascends to 2.7 global hectares per capita. That means we have a deficit of almost 1 hectare per capita. The Ecological Footprint is the area of land and water it takes for a human population to generate the renewable resources it consumes and to absorb the corresponding waste it generates. It measures the “quantity of nature” that we use (what we consume) and compares it with how much “nature” we have (biocapacity). Our biocapacity is exactly that: the capacity of our biosphere to regenerate and provide for life.
As we have mentioned, the current process of money creation promotes excessive consumption, which has led to a large increase in our Ecological Footprint and the systematic loss of our planet’s biocapacity (a situation that creates deep social and ecological challenges).
In other words, accelerated credit expansion during dollar standard system triggered exponential curve patterns shown in the social-economic and terrestrial trends indicators. As already mentioned these trends indicators characterize the Anthropocene post-acceleration (Steffen et al. 2015b).
Conclusion
To solve the problems of the Anthropocene, we need, among other things, a change in the way money and credit are created (Paiva Sobrinho and Córdoba Brenes, 2016). Fortunately, humanity has access to technologies and knowledge that enable money and credit creation without interference of central banks and other financial institutions.
A new economic structure is necessary, in which money creation and credit expansion will never again be only in the hands of our current financial institutions.
Innovations like blockchain technology, can help us delineate new local and global monetary systems, in which currency issuance can (and will) be backed, for example, by nature (and not by debt). In these new systems, money and credit will be designed to address our environmental, social and economic challenges as a society.
References
Bank of England, 2014. Money in the modern economy: an introduction, by Michael McLeay, Amar Radia and Ryland Thomas of the Bank’s Monetary Analysis Directorate, Quarterly Bulletin, Q1 2014.
Crutzen PJ and Stoermer EF (2000) The ‘Anthropocene’. IGBP Newsletter 41: 12.
Duncan, R. 2005. The dollar crisis. Causes, consequences, cures. John Wiley & Sons.
Duncan, R. 2012. The New Depression: the breakdown of the paper money economy. John Wiley & Sons Singapore.
FED. 1982. Putting it simply. Federal Reserve of Boston.
Global Footprint Network. 2015. National Footprint Accounts.
Goerner, S.; Lietaer, B.; Ulanowicz, R.E. 2009. Quantifying economic sustainability: implication for free-enterprise theorytheory, policy and practice. Ecological Economics, 69(1): 76–81.
IMF, Balance of payment manual, 2004.
Koo, R. C. 2015. The escape from balance sheet recession and the QE trap. John Wiley & Sons Singapore.
Milne, A. 2009. The fall of the house of the credit. Cambridge University Press.
Paiva Sobrinho, R.; Córdoba Brenes, K. 2016. New money for sustainability.
Steffen W, Sanderson A, Tyson PD et al. 2004. Global change and the Earth system: a planet under pressure. The IGBP Book Series. Berlin, Heidelberg, New York: Springer-Verlag,
Steffen, W. et al. 2015a. The trajectory of the Anthropocene: the great acceleration. The Anthropocene Review, 1–18.
Steffen, M. et al. 2015b. Planetary boundaries; guiding human development on a changing planet. Science 347, 1259855. doi:10.1126/science.1259855 pmid:25592418.
Werner, R.A. 2014. Can banks individually create money out of nothing? The theories and the empirical evidence. International Review of Financial Analysis, 36: 1–19.
