Could a new concept of money create a new global financial ecosystem?

May 4, 2022

Two people holding and passing bags with a dollar sign on them

According to Reuters, global debt has hit a record $303 trillion. Financial experts and economists predict five further critical conclusions the world will witness throughout 2022: heightened inflation; higher interest rates; increased volatility; slower growth; and lower investment returns.

The global financial ecosystem has been disrupted, on a seismic scale, by digitalisation – making it difficult to predict exactly what shape the monetary system of the future will take. But technological transformation is not the only development catalysing widespread change among traditional financial institutions. Other developments include: process innovation; changing customer demands; globalisation; sustainability constraints and climate change; instability among political economies; and impending financial crises. While the list is far from exhaustive, it offers an insight into the many complex challenges – both now and in the future – facing governments, businesses, non-profits, local communities, central banks, and lenders.

Meaningful solutions and alternatives are needed to combat threats to our global prosperity, security and future. What can be done, and is already being done, to deliver a more stable, more inclusive, healthier financial outlook? Are there ways for local and national economies to build resilience into their systems?

What are the issues of the current monetary system?

It is impossible to be unaware of some of the many negative environmental, social and economic macroeconomic consequences that are complicit in the current financial world order. For example:

  • Public and private debt. Typically, money is often created by banks when loans are taken out, so banks operate on a basis of debt. For every dollar of money, there is a dollar of debt – so injecting more money into the economy means heading deeper into debt. When debt – from mortgages to loans to credit cards – is repaid, the money does not go back into the economy; in essence, it simply disappears.
  • Growing inequality. Financial instability – further impacted by factors such as exorbitant house prices, high cost of living and insecure employment for much of the global population – is ever-widening the gap between the rich and the poor. Reliance on debt means that wealth is redistributed from the bottom 90% to the top 10%, with money transferred from the real economy to the financial sector.
  • Financial crisis and recessions. A financial crisis occurs when banks create too much money too quickly, speculating on financial markets and pushing up house prices. When debts become unpayable, crisis and recession hit.
  • Taxes and public spending. In countries where banks create the national money supply, it’s the population who shoulder the associated higher tax rates. As proceeds from any new money creation end up with banks rather than taxpayers, the public are the ones who pay the cost of financial crises.

Further examples include challenges to democracy, environmental threats and impacts on jobs and businesses. Any changes to central infrastructures, such as the traditional money system, should be evaluated against whether they serve – and to what extent they serve – public interest. This interest should not be limited to economic benefits, but must encompass governance of basic rights, such as data privacy and sustainable abundance.

Rethinking money

Rethinking Money: How New Currencies turn Scarcity into Prosperity (Berrett-Koehler Publishers), by Bernard Lietaer and Jacqui Dunne, explores innovative ways in which individuals are finding ways to address a variety of systemic global issues. Lietaer and Dunne make the case that there are thousands of ways in which the world could be diverted from the often-catastrophic course it appears to be on. These ways do not rely on the tactics that are increasingly government go-tos – namely, raising taxes, handouts or redistribution of wealth – but rather by rethinking the very concept of money.

Lietaer and Dunne believe that bank debt and scarcity – which our current financial services and banking system is based on – places inherent limitations on what we can achieve, socially, economically and ecologically. By adopting new currencies – as part of a cooperative currencies financial system – and using them alongside more traditional currencies, they state that communities are better placed to solve critical issues.

Alternative, cooperative and new currencies

More than 4,000 cooperative currencies – also known as community currencies – are now in circulation. The term cooperative is used as each is a medium of exchange that relies on solidarity. These forms of currency have always existed and, in times of uncertainty or crisis, take over from traditional currencies to serve as buffers and uphold critical economic activity. These forms of currency refer to unpaid labour and other resources, which hold inherent value and contribute both societally and economically.

Crucially, they do not replace other forms of currency. Rather, they complement them – serving to create greater economic stability in the process. Among the most significant values of new currencies – which include mutual credit systems, cryptocurrencies and convertible local currencies – is their potential to not only resolve traditional money’s inadequacies, but to pioneer new behaviours to transform society more widely. By nature, they support initiatives that are:

  • Closely connected with community needs
  • Controlled by, and designed for, their users
  • Seeking to build relationships
  • Financially transparent
  • Rebuilding and addressing neglected share capital

For example, new currencies work to: provide healthcare; create jobs, work opportunities and purpose; reinforce community networks; improve towns and cities, and strengthen local economic growth and reinforce economic systems.

Both money and monetary systems are social constructs. If current financial systems and monetary policies aren’t delivering on a local, national or international level, the opportunity exists to design a new system whose goals more clearly align with ours.

Fulfil your leadership ambitions in the fast-paced global finance sector

Combine in-depth study of organisational operations and environments with specialised courses in finance with the University of the Commonwealth Caribbean’s online MBA Finance programme.

Designed to meet the needs of employers, your studies at UCC will equip you with the essential skills, tools and knowledge needed to excel and affect change in the high-pressured, changeable world of business and our modern economy. 

Your financial studies will span financial policy and strategy, investment analysis, portfolio management, and international financial markets. While core courses in business will cover organisational strategy, marketing, ethics and sustainability, business economics, people management, decision making and leadership.