Global Climate Dollars – a new idea for a currency that aims to drive environmental benefits

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1) What problems are we experiencing with current money systems?
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The period of fiat economics that the world has been in since 1970 has been the most environmentally destructive in history, and during the same period we have seen some of the fastest acceleration of inequality between countries and between (and within) communities in both developing and developed countries.

Not all modern ills are down to the money/currency systems we use, but it’s a safe bet that many of them would be alleviated or even reversed if our money systems were aligned with people and the planet, rather than misaligned as they are at present.

 
2) What can be done about it?

Maintaining economic growth is important, but enabling the rebuilding of the biodiversity of our living environments while addressing the inequality between nations to stand alongside of other important economic structures needs to be a part of a future where our planet ends up with an abundance of fresh water, food, and beautiful green environments, on land and at sea.

Michael Twist has proposed a new / additional currency called the Global Climate Dollar (“GCD”), based on carbon sequestration. 

This article is an exploration of the potential benefits, and practical challenges, in such a proposal.
New or additional currencies offer the potential to dramatically alter our relationship with money and how it drives us towards, or away from, environmental sustainability.

Twist describes his proposal in much more detail here:
https://gcdollar.com/

I summarise it below.
 
3) What’s the basic mechanics for GCDs?

GCD is working to create something similar to the gold standard, but modern and linked to our living environment, not a lifeless commodity.  GCDs are digitally “minted” into existence in response to the accumulation of sequestered organic carbon into a bio-diverse living environment, at a rate of about 4,000 GCDs per tonne of carbon sequestered.  The GCDs are then distributed to the various parties involved in maintaining that living environment sustainably:
 
a) GC-Landowner/s
b) GC-Workers
c) Global Climate Dollar (company)
d) GC-Dollar Affiliate
e) A Country

The Remaining 1000 GC-Dollars per tonne are earmarked for further distributions over time to some of the above participants
 
The Warm fuzzy feeling you may feel when you first grow money directly out of a living environment is what the GCD will be backed by, not a specific asset backing as was the case with the gold standard, but hopefully the backing comes from a community who want to have a liveable habitat, atmosphere and a truly living economy.  The goal of GCD is to create a new connection between environmental systems and a user-friendly financial tool.


Twist sets out an overall sense of opportunity:
“A part of me wants to believe that enough good will be achieved and enough land will be restored that the increase in living environments will lead to greater food security, more freshwater availability, and maybe even an increase of life in the seas once more. The ideal launch location would be somewhere with a stable economy and people who have some economic common sense and internet access.  But at the same time if somebody from the other side of the world finds this intriguing and begins to put it together in their backyard, should we throw up the roadblocks and prevent this, and if we have done our work properly, will we need to? Inequality is on the rise in developed countries as well as emergent economies.  Our goal would be inclusion for those who are willing to abide by the GCD rules in as many places as it is needed.  We cannot change everybody else's rules.  We can only ask that people are willing to take responsibility for their own activities, socially, environmentally, and economically.”
 

 
4) Conceptual scene-setting

What is "currency" (or “money”) - what does it do for us (ie individuals, groups and all of humanity)?   There are some foundational concepts to consider.  Eg what is the difference between a purely "digital currency" and a currency that has some actual 'asset backing' in the real, physical world?  Some important basic building blocks for any currency revolve around some of these questions.  We often forget them when dealing with currencies on a daily basis.  But when one or more of the fundamentals go missing or get overlooked, a currency can quickly devalue, and the financial institutions which depend on such value can quickly collapse, destabilising whole societies.

At a superficial level, a currency is a community-based concept;  everybody who uses currency of any kind acknowledges it’s “worth”, even though it might have no real value in terms of asset backing that a financial institution would honour by exchanging something tangible (like an amount of gold) for the currency.

The value of a currency without asset backing is in the agreement between individuals to honour its local expected value in exchange for real-world goods and services.  Those exchanges, and the economic and environmental gains and losses that occur from them, can be undertaken irrespective of whether or not the currency has any “asset backing”. 

Asset backing is one way a currency can be designed to have stability over time (for example if the assets which support it are a stable resource).  A consequence of operating a currency without such stable asset backing is instability, unless some other form of stability can be created and maintained.

This discussion has already introduced a number of aspects of money, and it’s worth teasing them out a little more formally, to clarify it’s multiple purposes in general use.

Any currency (or money unit) might or might not possess the following characteristics:

1) a medium of exchange 
2)  a store of wealth  
3)  a unit of measure (or "unit of account") 

A further characteristic for any new currency aiming to drive environmental benefits:
4) its use helps achieve additionality, for example that the carbon sequestration (or other environmental benefit) on which it is based is additional to the environmental benefit that would have happened without the use of the new currency
 
Which of the above does GCD represent or address? Hopefully, 1, 3 and 4.

To be clear, a currency unit such as GCD doesn't have to have all the characteristics I mentioned above (exchange medium, store of wealth, unit of measure, additionality) but of course if it lacks one or more of those there are consequences for its usefulness, relevance, geographical or organisational scope, scalability, potential to replace (or substitute for, operate alongside) other currencies etc.
 
5) Will GCD replace other currencies in use?

Probably not.  As Twist says:
“This is not about justifying change [ie system change, changing existing use of currencies] - this is about supporting systems that need to exist and already do, while encouraging growth in places that have not had viable economic or environmental systems...  I believe that international currency exchanges would continue to do what they do, but individuals can choose to connect themselves through a common, known and stable GCD currency exchange ratio for as long as they are willing to abide by the GCD rules. This does not stop individuals from trading on the world markets when it's in their best interests or returning to GCD when it is better for them to do so. Inclusion not exclusion.” 

In other words, the GCD is intended to complement existing currencies, but it is difficult to see how this can be achieved, except by operating GCDs only in geographic locations where existing currencies are not prevalent (or maybe are not used at all).  See more of my comments about this elsewhere in this article. 
 
Twist goes on:
“If you base your system in the ‘only if you change what you're doing’ realm you discriminate against those who live within a natural environment and are an essential part of its continued existence.  For example, the native tribes of the Amazon forest are an apex predator and if you remove an apex predator from an environment it generally doesn't do as well.  It is essential to maintain the entire community which is at the moment in trouble as it loses its youth to the cities.”

What he is getting at is that there is an advantage in introducing a new money system to people in places where they exist in (and with) nature, rather than by adding to the further draw of such people into the non-natural world by replacing the existing money systems in that non-natural world.

That’s not to say that GCDs would not be capable of growing and operating at large scale.  From Twist:
“You don't go to the top, that's trickle down economics which has been failing the people on the ground doing the work for years.  [but] You create the GCD and pay them in at the bottom of the economy, a percentage is allocated to the government but they do not get it until they agree to the rules/governance, and you make it easy for the people on the ground to use and comply with. Give it an opportunity to get into the economy and make a foothold, and it could become a part of the economic landscape.”
 
 
6) How does GCD relate to carbon offsets, sustainable use and harvesting from the land etc?

As Twist describes it:
“GCD is designed to be used as an as-well-as to any other form of carbon accumulation evaluation, offset, carbon credit, simple environmental evaluation of carbon accumulation, or local entitlements, wages Etc.  If you have data, records of the people who worked on the project, and would like to be a part of it, it is possible you'll meet the criteria, inclusion not exclusion because inequality is as dangerous as climate change.  Another part of the freshly minted GCD is attached to the land in the form of a residual payment that lasts for 100 years, and it can be added to each year of positive organic accumulation, this enables the land to continue to grow in value. This creates a narrative where it becomes important who you sell your land to, because a part of your residual payment is reliant on the land continuing to accumulate organic carbon.
As long as your projects are increasing biodiversity and accumulating organic carbon and you maintain the above information, you may be eligible for GCDs.
(Note: You cannot receive GCDs for organic carbon that is leaving, or grown to be removed from, the property.)
But any company that wants to support the increase of biodiverse living environments and the reduction of inequality between nations could accept GCDs in exchange for the goods and services they provide. In the beginning these offers could be in similar volume to what they provide in charitable donations. The obvious difference is that once they have the GCDs they would be able to use them with anybody else who is also accepting them."

 
7) How to relate this to the concept of Natural Capital

An excerpt from my book "Unbalanced World - the asset stewardship shortfall" is relevant here:
"Just because something (for example some forest within the number for natural capital) has been given a value, this doesn’t of itself mean that the right outcomes and objectives will be achieved. One of the most ardent critics of the natural capital concept, Anderson (2018) gives an example of the difficulty of moving beyond capital valuation to stewardship of the capital via management of a sustainable yield (where this latter step might be missing):
“Suppose someone did the calculations and handed the results to the Indonesian Government (and this has been tried), proving that the forests have a greater value left standing than can be extracted by chopping them down and selling the timber, coal, palm oil, and so on that are currently being exported from Indonesia. I doubt that this would persuade them to change course. They would see the economists’ figures as interesting and those who provided the figures probably as well-meaning, but then ask: where is this money? If we could really get what is currently this theoretical money, our plans and policies would change. But we have people to feed and an economy to develop, and we know that selling timber, coal, and palm oil actually brings money in.”"

Twist's response to the above:

"The world knows that carbon and living environments are extremely important to the future of humanity and have great financial benefits, but without a direct representation of its existence and an ongoing system to monetise and add value to it governments all over the world are making the same choices, money they can spend or an environment that costs them money to keep.
GCD could bridge the barrier and enable green countries to grow wealth by caring for their green country; because the true value has the potential to change the direction of the environmental decline that we are currently facing, if in the example above the Indonesian government and the people on the ground received a large volume of a commodity [ie GCDs] that they had agreed to use within their economic systems, and other countries had done the same, then we would have a solution to fund and care for living environments.  It would also follow that if the government then turned around and cut down the forest, they would lose this [GCD] revenue stream not just now but into the future."

On the one hand, his views concur with mine on the importance of Natural Capital.  I go further, by supporting existing initiatives that are encouraging more and more countries to include Natural Capital in their National Balance Sheet accounting.

On the other hand, however, Twist's suggestion, which appears to be to mint into existence GCDs and introduce them into a major economy such as Indonesia, could (as well as its positive impacts) have much the same effect on inflation as if the Indonesian Government/Central Bank had minted lots of new local currency and distributed it.  That is something to consider.

The reader can compare and contrast the GCD concept with my own suggestions about Natural Capital accounting within National Balance Sheets.  Both concepts aim to improve and repurpose how we account for nature.  As Twist says:
"Our planet's liveable environment is the most important part of our planet, how is it not the most important part of our economy?"

He and I wholeheartedly agree on that sentiment.


 
8) About GCD as unit of measure (account)
 
GCD is “fixed value”, being 2019 USD.  That's fine.  It can have that use (for twenty years) by definition and construction, and maintained by the GCD rules.  In fact, there are many such measures already successfully in use, for example to compare values of various assets or prices and how they change over time while excluding the effects of money value inflation.  Someone might show that the real price (before inflation) of product x has risen y% since 2019, by showing the price of that product in USD in 2019 and the price today "expressed in 2019 USD".  So, the GCD could be used in the same way.  The price of product x in GCD in 2019 could be compared with the price of product x today "expressed in GCD".  So far, so good.

So we could use GCD in the same way as expressing prices or values "in 2019 USD".  The main issue with this is that it is a trivial use, and arguably an unnecessary and potentially confusing use for GCD, since we can already use "expressed in 2019 USD" in exactly the same way, and almost everyone in the world would know what you meant.  You would not have to educate them about a new measure called GCD.

So, there would have to be more to the use of GCD than just "a unit of measure" to provide some usefulness to overcome the fact it is new and as yet unknown except among a small community (in a wider global context).

Twist's suggestions about fixed exchange rates (perhaps better described as "fixed ratios") are in danger of underestimating, or even ignoring altogether, the risk represented by the inevitable existence of a de-facto 'value' for GCD's, eg in terms of the rate at which it can be exchanged for an amount of local goods that act as a benchmark, or for an amount of a stable international currency such as the USD in an 'outside of the GCD rules' marketplace.  This defacto value might be very different from the "fixed ratios" over time.

Twist says:
"The value of GCDs is only fixed to the exchange rates of local currencies, not to any specific commodity, not now nor in 2019."




9) About GCD as medium of exchange

What about "medium of exchange" as that additional use?  A question arises about what is exchanged for what when using GCD.  This can provide something better than barter, because barter relies on the parties to the exchange having some tangible product that can be exchanged at a specific point in time (and both products change hands at the same time).  Money as medium of exchange enables a time gap to exist between handing over of product x and handing over of product y - very useful if both products are not ready for handing over at the same time, eg because one of them is stored somewhere far away, for purposes of efficiency, while the other one needs to be handed over straight away because it is perishable and cannot be stored for any length of time.  What sorts of things can be exchanged for GCD, by whom, over what geographic, temporal or social/ organisational spaces and distances?  Where are the limits and rules for such 'trading' if I can call it that?
 
To clarify, the time separation using money as medium of exchange is because the single barter trade is replaced by two money trades - the first being the exchange of product x for money, the second being (at a later date) the exchange of that money for product y.
That circulation of money as medium of exchange creates added benefits, expanding an economy.  Some local money schemes drive that circulation by constructing the money in such a way that it depreciates over time, forcing the holders of the money to use it before it loses significant value and especially before it "expires" altogether.  That avoids the situation of holders of the money just hoarding it for long periods of time and not using it.
 
Such a built-in depreciation mechanism is not the case with GCD, however, so there is a danger that GCD’s could be hoarded, reducing the speed of circulation of GCD’s in the community.  Twist describes in the next section how he sees the risk of hoarding.
 
10) Global Context and GCD as a “commodity”

As Twist describes it:
“The global context is an essential part of the design.  Modern theory requires you to develop something that works in your backyard at small-scale, this is the method most commonly used to develop projects and ideas.
GCD was designed with the whole world in mind and small-scale projects at its heart.  Grassroots economic growth could get people in remote regional areas to start growing money from environmental restoration, stimulating local economies and drawing the people who are living in tents around cities back to regional communities.
It is also possible through GCD to enable developing countries to grow wealth from their standing environmental treasures without having to industrialise (build factories, create tourist locations etc) to become wealthy, the true wealth of this planet is in its liveable habitat, industrialisation is putting that under a realistic threat that will impact the next generations if we don't solve this conundrum.
GCD is intended to be used by anybody who has agreed to the conditions of use as a form of currency, but technically it is a commodity and to accept our GCD's you must be willing to accept our rules.
“At your discretion” being the keywords here;  you are not forced to accept GCDs every time but when it is advantageous for both parties to an exchange to do business using it then they must abide by the rules. For example:
[GCD rule 17]:
Discretion;
In the normal course of business, buying and selling is a part of life. You must be willing to accept GC-Dollars in exchange for goods and services in transactions at your discretion, as you would any other currency or exchange for trade, at our known local exchange rates.
As for the hoarding of this commodity, because it is minted and handed out through a diverse network, even if one person decided to hold onto every cent they received, a lot of it leaks past that individual into the greater community. 

If a person who is not receiving it directly decided to start buying it and holding onto it, the continuing trickle release of GCD's into the economy would only benefit from people trying to buy it all, most importantly hoarders could create enthusiasm about the value of something that is so important by holding larger amounts.

The goal is for GCD's to be as useful and easy to use as Visa, or any form of digital banking.  Ultimately we would like to be able to rely on biometrics or similar for identification for developing countries to ensure that we can include the most vulnerable in our global community.
Imagine if you lived in the middle of the rainforest (hunter gatherer tropics), and you walk out of the forest with nothing but the shirt on your back and a couple of light tools that you use for hunting, if you could go to the nearest Internet connection verify who you were and do business for things you needed to maintain your life and your community, this is the dream, the reality to get started can be far more simply designed and the components are common.

At the other end of our goal is the already industrialised communities who want to be able to use ‘pay wave’ type methods to pay for a cuppa coffee or to pick up some fruit from the local market.  At the earliest possible stage of development we need to include accessibility for individuals to do business locally and globally.”
 
11) Additionality

Twist is not convinced that strict additionality is required.  He says:

"... not every environmental system that is accumulating carbon is currently doing the wrong thing so why should landowners and all workers etc have to change to benefit from their activities? Just because the carbon was going to be accumulated anyway does not mean it should not generate revenue [ie an income in GCDs]"

However, he anticipates that much of the activity earning distributions of minted GCDs will, in fact, be additional, new activity.

Again, from Twist:
“Imagine if you're living in a third world country stuck in a refugee camp for five years. A group of you get together and start to grow a food forest around the outside of the camp, the increase in organic carbon and biodiversity accumulates carbon which generates GCD's and enables you to become slightly better off financially. So then you start buying and selling between your other camp mates, increasing commerce and enabling access for what you need to improve your standard of living while having a positive environmental effect locally.
Business starts to happen because there is a revenue stream available, more opportunities for financial gain come because of the casual increase of biodiversity.
The new skills you gain make you realise it's possible to fix the land that you fled from.  The GCD you have enable you to trade for what you need to get started restoring your homeland.

The people on the ground doing the work are still entitled to their normal wages from their employers, for example if somebody receives $2.00 a day US for working on an environmental project, that is successfully accumulating organic carbon into a living environment. When the valuation is completed they could receive GCD's As-well-As, think a bonus with a residual payment.  If they set up a voluntary project, they could be eligible for GCD's.

 
Rule
13. Not wages
Any, and all payments made by GC-Dollar to GC-Workers or GC-Landowners etc… are to be in addition to the entitlements of workers and not a replacement for normal wages in accordance with local laws. Any owner failing to meet these conditions may forgo their rights for any payment of GC-Dollars now and in the future.

14. Voluntary
If GC-Dollars are given as the only source of reward for time spent at a project, then your participation is voluntary and at your own risk, and GC-Dollars accept no responsibility for your time and effort financially or in any other way.

28c. The GC-Workers Per Tonne
a. The GC-Workers log their hours on the website for each of the GC-Lands and Waters that they work at.
b. A total of hours worked at each of a GC-Landowner’s GC-Lands and Waters are added up for each individual location. When repeat environmental testing is carried out at any of the GC-Lands and Waters they have worked at, the GC-Worker/s receives their share based on the hours they worked, and the amount of carbon accumulated into the living environment, at that specific GC-Lands and Waters location within that evaluation period.”
 

 
12) A provocation - A discussion of controlled (fixed price) product markets versus floating price product markets, and how that relates to something like the Gold Standard
 
I want to revisit the principle of GCD being fixed to 2019 USD and with published conversion rates to currencies in 170 countries.  My initial take on that is that it doesn’t, on its own, add any benefit.  It’s just making the process quicker that people would have to go through anyway.  An example; I live in the UK, Europe.  Most things in my life are expressed in GBP or Euros.  So, if someone said (hypothetically),  “this kilo of butter in Malawi is worth 10 GCD”, I’d know that this meant the value of 10  2019 USDs.  To make that meaningful in my local frame of reference, I’d look up the conversion of USD to GBP and Euros in 2019.  That would tell me what 10 GCDs meant in terms of both 2019 GBP and 2019 Euros.   Ie it tells me what value it represented to me in terms I could relate to.  Having all those 2019 cross-exchange rates in a table does not add anything I couldn’t look up myself.  So, where is the added benefit?   For example, it doesn’t tell me about the price of butter in the UK, either in 2019 or today.
It might be important to explore the difference between market trading, where product prices float (ie change over time), where product price is determined by supply and demand dynamics, and a controlled “market” where product prices are pre-determined, ie pegged, and fixed (not floating) over time, where supply and demand must be matched by a market regulator or controller (otherwise, there is waste and inefficiency through product not being sold, or demand not being met).  I’m not sure what my next questions or examples are yet …
As soon as you allow people buying and selling in a market to use GCD as an alternative medium of exchange to existing local or international currencies, you are inviting substitution of some exchange transactions (in GCD) for the ones that would otherwise have been undertaken using the existing currencies.  Is this consistent with Twist's earlier comments about GCD being additional to existing trade, rather than substituting or replacing it?

(Twist says: "for example, if you are purchasing that block of butter online you would pay its price plus freight, and simply do the conversion to GCD’s to carry out the exchange according to the local exchange rate to GCD’s in Malawi, but if that same block of butter was in your corner store and was double the price, then you would go through the process and come up with a different price that included the local storekeepers markup against your local currency, the same way you would if you are using cash.  The price of something depends on where you are standing a glass of water in the middle of the desert when you are dying of thirst is worth a bar of gold if that’s what you can afford. GCD’s run parallel to your local expected prices and should be easily calculated against local costs in any currency.")


Twist said:  “GCD is designed to be used as an as-well-as to any other form of carbon accumulation evaluation, offset, carbon credit, simple environmental evaluation of carbon accumulation, or local entitlements, wages Etc.”
Wages that might otherwise have been paid in existing currencies like USD?  Wages that will be used to buy food, tools or other traded goods? (otherwise, what’s the point of receiving a wage?)
(Twist says: New GCD’s that are being minted in circulation are paid in addition to local wage entitlements, not instead of.)


People will only use a money unit as a medium of exchange if it is stable over time, as expressed by its purchasing power in markets with floating prices where they can obtain things they need or want.  You can’t control and set a fixed exchange rate over time between GCD and other currencies in an international market with floating product prices.  Adam Smith, and many more subsequent economists, set out some of the basics of mutually beneficial international trade and how it affects exchange rates between international currencies.  You can regulate a fixed price of a product over time, but only in a market you control which doesn’t allow floating product prices.  Trying to mix the two types of currency in a universally accessible international market would lead to GCD failure through market mechanisms such as arbitrage and currency inflation, or through government interventions to avoid market collapses. 

(Twist says:  the price you must pay for local goods will vary right along with the amount you are paying in your local currency, this is the intent of the honour the value statement. If last week a kilo of bananas cost you $4.00 per kilo in your local currency and this week it cost you $5.00 per kilo, it make sense that you would need 25% more GCD’s in the second transaction, and if the price goes down the number of GCD’s would vary once more following the market changes against local currencies)


A dilemma is how to operate product markets within which GCD could flourish and it wouldn’t affect the ability of existing floating price product markets to operate and deliver societal benefits.  And how to ensure the two types of market didn’t overlap.  And to ensure the markets without floating prices remained efficient and effective, without waste,  but without lapsing into stifling totalitarian governance rules. 
 
I’ll give a simple example about floating prices of products and how they can affect a money as medium of exchange where there is a lack of a financial regulator or government intervention to keep things stable.

Suppose, here in the UK, it’s the medieval era.  I’m at a market stall selling clay pots.   Someone wants to offer GCDs to buy a large pot of mine.  (Imagine GCDs existed as an alternative to groats, pennies and shillings or whatever the local UK currency was at that time).  Despite what the issuers of the GCDs say (some complex stuff I don’t understand), I know that the “going rate” or “value”  of GCDs is that a tonne of wood sustainably harvested from nearby woodlands would cost me about 10 GCDs. That’s quite stable over time, because the woodland has been harvested for wood regularly and consistently for many decades by then, and the same local family has done the harvesting seemingly forever.  They don’t change their prices because they are sufficient for them to earn a subsistence living and they’re happy doing that.  So, I have a good idea what a tonne of wood is ’worth’ as a standard, in terms of GCDs.  If someone offers me 1 GCD for my big pot, I say “get outa here, that took me a week to make, and if I sell it for 1 GCD, I’ll only be able to buy a few sticks for that, and those wouldn’t keep my home warm for a day, let alone a week!”.  On the other hand, if someone offered me 100 GCDs for my pot, I’d bite their hand off for it, because with that I could buy 10 tonnes of wood and that would heat my home for the whole of next Winter!  So, we see that the “market price” of my pot is going to be somewhere between 1 GCD and 100 GCDs, perhaps 10 GCDs (say) and it will vary over time depending on things like how good I get at producing pots people want with least amount of time or materials, whether people already have all the pots they need or not, how long they last when they use them in their homes.  This is all independent of the fact that there is a stable currency unit (the GCD) in circulation as a medium of exchange.  These changes in price are nothing to do with the currency unit in use. 

However, suppose in the next year or two the local woodlands become depleted, through poor management or natural disasters (eg forest fire, storm damage etc), or the family harvesting the wood fall ill and there are very few people who have the skills, tools or time available to replace them and do their work to anything like the same standard and productivity.  As a result, most wood supplied to my village comes instead from much further away, and the transport costs mean that the effective price of a tonne of wood has doubled from 10 GCDs to 20 GCDs in two years.  Then, the de-facto value of the GCD (to me and most of my neighbours) has halved, because the same 10 GCDs that bought a tonne of wood two years ago only buys me half a tonne of wood this year.  Now, the floating market price of my big pot might have to be 20 GCDs instead of 10, in order for me to sell it and buy enough wood as a reward for my efforts and to keep my family warm next Winter.  That’s an example of supply-cost-push inflation that impacts the value of the money as medium of exchange.  If I decided to keep my prices the same as they were, at 10 GCDs for each big pot etc, then some bright spark is bound to spot an arbitrage opportunity – because he/she knows that a potter down the road has had no choice but to sell their big pots at 20 GCDs (or they will freeze to death next Winter – they were so close to the edge last Winter and only just made it through).  So, that bright spark buys as many big pots as they can from me at 10 GCDs each and sells them to the potter down the road at, say, 18 or 19 GCDs per pot, depending on how close to the edge that other potter is this year.  The arbitrager makes a massive profit in a short time.  Hopefully, long before he/she has cleaned me out, I get wind of what they’re up to and raise my prices before it’s too late.  This arbitrage pressure adds to the incentive to raise my prices to the de-facto market-based level.
Governments, through central banks, for a while,  got round this problem of currency instability and price inflation by issuing currency that had “promise to pay… “ attached to it.  Under 100% asset backing, any holder of the coinage in circulation (not the case with GCDs) could go to the central bank and get the stated face value as actual gold or something similar.  No woodlands involved that would make the currency subject to the vagaries of natural disasters messing things up.  So, quite quickly, in this medieval world, people would be more likely to see the currency of the realm as stable and usable than this unknown GCD thingy.  How to solve that for the GCD?

Twist seems to agree.  He says:
“GCD can not control the world [product] markets, they will continue business as usual setting their [product] prices.  If 1 kg of flour costs 1.00 USD it would cost 1.00 GCD.  If the [product] price was to rise to 1.50 USD per kg then you would need 1:50 GCD to buy it. It does not fix the price of the commodities[/products].  It only fixes the exchange rate to your local currency enabling the markets to be markets.  As the local government acts to control movement within its local markets creating an impact upon the purchasing power of its local currency in local markets GC-Dollar would move right alongside as the purchasing power moved up or down, but these changes would not affect the GCD’s exchange rate for other countries’ currencies tiptoeing along that fine line to enable people at the grassroots to do business in other countries while their economies change locally.
GCD’s a peg to a constant exchange rate for local currencies, not the commodities, goods, and services they are used to purchase.”
 
One thing this does not address, however, is how currency exchange rates between various international currencies move over time.  “Pegging” a local currency to one of those international currencies can only be successfully done over time by controlling the market in the local currency.  Otherwise, any such local currency will have a de-facto ‘value’ in local exchanges for locally produced goods, and that value will change over time, as illustrated by my medieval example earlier. The only way it can be maintained at a fixed rate to a target international currency is if a community (or national government) body intervenes in the market to maintain the exchange rate against the international currency, for example by buying or selling the local currency itself in the currency markets.  However, that is highly risky.   Many governments have bankrupted themselves trying to do just that, and the resulting readjustment after they have had to abandon it has often led to their local currency suffering hyper-inflation, and caused their economies to collapse.
 
Hong Kong provides a live example where pegging of its currency to the USD is coming under increasing pressure and might be abandoned soon.

If a country tries to maintain a peg through "rules", that effort will not stop the existence of an "outside of the rules" market in the currency (a "black market") based on the defacto (ie real world) value of the currency, which would eventually bypass the official, rules-based trading systems.  When enough of the currency is exchanged through the black market route rather than the official rules-based one, the currency value, and therefore the peg, breaks down in any case.

This is why 'overlapping' of markets for usage a new currency alongside existing international currencies is such an important issue for the GCD.  If there is no such overlap, then the peg is much more likely to be defendable over an extended timeframe.  Wherever there is overlap, the GCD will be vulnerable to defacto value and bypassing of the official "rules".

This is the traditional method of keeping a peg in place (from the CNN article about Hong Kong linked below):

"The Hong Kong Monetary Authority (HKMA) is committed to keeping the Hong Kong dollar between 7.75 and 7.85 per greenback. When the currency reaches either end of the band, the authority will intervene and defend the peg, through buying or selling Hong Kong dollars on the currency market.  By selling US dollars to buy Hong Kong dollars, the HKMA withdraws cash from the banking system, reducing the city’s aggregate balance and causing interest rates to rise. This strengthens the Hong Kong dollar, enabling it to stay within the trading band. The same is true in reverse."
It only works while the country has enough financial reserves to be able to buy and sell the currency for USD.  When it starts to run out of such resources, the peg comes under increasing pressure - if kept in place, it might bankrupt the country.

One of the few areas where Twist and I disagree is in dealing with defacto value of a currency, and what is involved in keeping a currency exchange/ratio peg in place. His solution to that risk seems to be:
- GCD rules
- Exhortations to people to "do the right thing"

In the real world, that is most unlikely to provide a way of avoiding the risk of defacto valuation and forced currency devaluation against international currencies in anything other than a very short time.  20 years of peg is super-optimistic, especially without the mechanisms in place that have traditionally been used to maintain such pegs.  

Even in Hong Kong, which is a large community,  this seems to be coming to a head.  See this article, in which it seems Hong Kong (a sizeable and economically strong community) is close to having to abandon pegging its currency to the USD:
https://edition.cnn.com/2023/06/13/investing/hong-kong-dollar-peg-yuan-intl-hnk/index.html

"Analysis: Why Hong Kong can’t afford to keep its currency pegged to the US dollar | CNN Business
Hong Kong’s currency is facing its biggest test since the global financial crisis of 2008."

From which:

"Hong Kong’s currency peg to the dollar is not sustainable...  Worries that money might be leaking out of China — despite strict capital controls — via Hong Kong could prompt Beijing to act if the flight of cash intensifies, he added.  Some hedge funds, such as billionaire Bill Ackman’s Pershing Square Capital Management, have reportedly taken large positions against the Hong Kong dollar. Ackman tweeted in November that “it is only a matter of time” before the peg breaks. "

 
13) Comparisons with the Gold Standard

Twist describes how the GCD could be similar to a Gold Standard:
 
"The gold standard created a known exchange rate for gold that lasted longer than any other period of Fiat economics, every country knew how many of its dollars you received for one ounce of gold in exchange for its local currency, and internationally the banks knew one another's exchange rates. All it takes is a community with a common purpose to agree to do so, or a lot of individuals who all stand together and honour GCDs."

That "All it takes" statement is doing a lot of work, in my view.

The gold and silver standards worked and created stability for extended periods of time.  It’s laudable to want to recreate that sort of stability.  But we have to ask ourselves the question “how were the gold and silver standards maintained, and why were they abandoned?”

From:
https://www.investopedia.com/ask/answers/09/gold-standard.asp#:~:text=By%20making%20a%20pool%20of,their%20export%2Dled%20growth%20strategies.
 
“At the end of WWII, the U.S. had 75% of the world's monetary gold and the dollar was the only currency still backed directly by gold. 
However, as the world rebuilt itself after WWII, the U.S. saw its gold reserves steadily drop as money flowed to war-torn nations and its own high demand for imports. The high inflationary environment of the late 1960s sucked out the last bit of air from the gold standard. 

The Gold Pool
In 1968, a Gold Pool, which included the U.S. and several European nations, stopped selling gold on the London market, allowing the market to freely determine the price of gold. From 1968 to 1971, only central banks could trade with the U.S. at $35 per ounce.
By making a pool of gold reserves available, the market price of gold could be kept in line with the official parity rate. This alleviated the pressure on member nations to appreciate their currencies to maintain their export-led growth strategies.
However, the increasing competitiveness of foreign nations combined with the monetization of debt to pay for social programs and the Vietnam War soon began to weigh on America’s balance of payments.
With a surplus turning to a deficit in 1959 and growing fears that foreign nations would start redeeming their dollar-denominated assets for gold, Senator John F. Kennedy declared, in the late stages of his presidential campaign, that he would not attempt to devalue the dollar if elected.  The Gold Pool collapsed in 1968 as member nations were reluctant to cooperate fully in maintaining the market price at the U.S. price of gold. In the following years, both Belgium and the Netherlands cashed in dollars for gold, with Germany and France expressing similar intentions.
In August 1971, Britain requested to be paid in gold, forcing Nixon's hand and officially closing the gold window. By 1976, it was official; the dollar would no longer be defined by gold, thus marking the end of any semblance of a gold standard.”

The lesson here is that, for a ‘gold standard’ to continue to be successful, the world supply of the asset backing has to be controlled by a world organisation (or defacto world organisation, such as the USA in the case of the gold standard).  Without that, any country that tries to maintain the standard  (ie keep the exchange rate to other currencies fixed) will almost inevitably find its balance of payments deteriorating as other countries compete with it and arbitragers make profits from it.
 
Can GCD's operate successfully enough, and with enough stability, to establish a new type of gold standard?  I think that will have to remain an open question for now.





14) A store of Wealth?

We have to be careful with language and expectations.  GCDs are intended primarily to reward and increase the sequestration of carbon into living, biodiverse environments.  This is very different from creation or enhancement of personal or corporate financial wealth.

Twist proposes three types of 'wealth' storage through the use of GCDs:

a) organic carbon continually growing into bio-diverse environments
b) a residual reward added to the lands and/or waters providing encouragement to maintain and increase living systems essential for humanity's future
c) the value given to GCDs when each individual agrees to honour the value of GCDs

Note that the third one of these is the only one which relates directly to an individual's wealth, and it is the most vulnerable to external influences and internal instability of the GCD.  


15) An alternative way of rebuilding after collapse?

One scenario in which the GCD could thrive is after collapse.  With mounting pressures on the global civilisation from environmental degradation, driven by the crossing of several planetary thresholds/boundaries and trigger points (as per Rockstrom), including some relating to Anthropogenic Global Warming, that civilisation might collapse.  It's possible that existing mainstream money systems might not be able to recover.  GCD offers an alternative way of rebuilding money systems on fundamentally different principles that align human development, trading and progress to environmental rebuilding and sustainability, supporting a liveable future for all, whatever the starting baseline is post-collapse.


16) Summary and remaining questions
 
At this point, it might be worth summarising.  There are some aspects of the GCD that I really like, some things that are still unclear to me, and some things that are concerning to me.  Perhaps some main highlights can be listed as pros and cons as follows.
 
Pros:

1. The link to carbon sequestration and global GDP is brilliant and likely to be motivating to a large proportion of participants
2. Digitisation without paper money makes it accessible globally (subject to addressing the needs of people who don’t have effective access to the internet)
3. Digitisation makes the potential numbers of participants huge – potentially addressing issues of scalability
4. GCD has the ability to enable participants to trade using something they can earn entitlements to by doing constructive activities that increase carbon sequestration (in contrast to the current mainstream money systems that incentivise many destructive activities)
5. It has the potential to be additive to existing money systems, rather than replacing them (the latter of which would be an almost impossible ask at this point in any case) but see related con regarding overlapping
6. It has potential to address and at least partially counteract the downsides of mainstream money systems (eg their incentivisation of activities that damage the environment and drive the gross inequalities that exist across the world)

 
Cons:

1. Risk of exploitation and false hope, because some participants might mistakenly believe that the GCD has the same real-world value as the 2019 USD and that it can be used to buy goods and services to the same value as a USD did in 2019 (documentation should make this clear, to avoid confusion and misunderstandings that would increase probabilities of exploitation).
2. Risk of overlaps of GCD usage and mainstream trading markets for goods and services using mainstream currencies such as USD, potentially eroding the positive social benefits arising from efficiencies of mainstream trading markets in goods and services
3. Risk of instability in GCD, hyperinflation in its real-world de-facto value as a medium of exchange in goods and services
4. It might provide opportunities for unscrupulous arbitrage traders to make money from unsuspecting GCD participants

The “promise to honour the value of the GCD” is an attempt to overcome some of the cons, by mandating some fixed exchange rates, pegging the GCD against the 2019 USD, and keep out (or outlaw) the use of a local defacto value of the GCD.  It remains to be seen whether this would be a viable and practical strategy and whether it could be policed sufficiently, and protected from attack from outside the community, to ensure adequate compliance and stability.
 
 
Questions not yet fully addressed (not a comprehensive list):

1. The nature and size of potential risks (and rewards) from overlapping use of GCDs and mainstream money systems in markets for goods and services
2. How to achieve sufficient scale, longevity and stability of GCD use (without any actual asset backing) to ensure it becomes established and lasts more than just a few years (see learnings from many previous alternative money systems, eg Stroud Pound, Bristol Pound, Chiemgauer)

 
An excerpt from the moneyland website is a good way of starting to close:

"As long as the community which issues and accepts the community currency is economically strong, the currency will normally hold its value". 

https://www.moneyland.ch/en/community-currency-definition
​
It's worth reflecting on that and exploring it, perhaps?  Something about ensuring the GCD operates within relevant "communities" (existing or emergent ones) and avoiding overlapping with markets where existing mainstream currencies are prevalent?

Let's give the last words to Twist:

"Mainstream monetary systems will not end, but the mechanisms that are used to justify printing more probably need to change.  Creating [personal and corporate] wealth through environmentally destructive practices needs to evolve into a planetary economic and environmental system that [creates personal, corporate, community and environmental wealth and] improves the liveable habitat that is essential for the future of humanity.  A steppingstone is needed between the industrialised business model and an environmental system that benefits planet and people. [The GCD could be that stepping stone]."


Footnote:

The following is from my "Ideas in a nutshell" part of my website:
https://planetarycfo.weebly.com/ideas-in-a-nutshell

I think it will be clear that my idea for a "Globo" and Twist's idea for the GCD, are very similar and closely related.  Perhaps they are complementary, and elements of both ideas could be combined to overcome some of the shortcomings of each idea taken on its own.  Something for further discussion, perhaps?

"A new global currency - the "Globo", perhaps?​
Having an asset-backed currency with a unit of sustainably managed land as the asset backing (without using a fractionally backed approach), would generate an incentive for beneficial actions, because the creation (or conversion) of (privately owned) land to sustainably managed land would in itself be a good thing while at the same time being wealth-creating for the landowner. Of necessity, governments or central banks would need to own (or control) significant reserves of sustainably managed land in order to provide this asset backing to their currencies. Not a problem to achieve in practice  – they already own much land and could always use compulsory purchase powers to create adequate levels of such reserves within a balanced economy and ecosystem.

This new form of currency, which one could call, for example, the "Globo" (drawing inspiration from the "Euro"), providing it was taken up by reputable governments and central banks, could provide all the benefits of being a medium of exchange and could also provide a store of value (overcoming some of the shortcomings of gold as a historical form of asset backing) while encouraging the maintenance (and expansion) of the stock of sustainable land which backs it. By the very nature of the finite supply of the asset backing, this currency would protect against the worst boom-and-bust cycles of existing economic cycles, by providing a stable and limited supply of the asset (and therefore of the money supply). It would also prevent a recurrence of the financial meltdown of circa 2008 and the fall of banks that happened at that time."



Michael Twist has reviewed this article, and provided inputs during its creation.
He said:
​“I would like to take this chance to say thank you David Calver for your considerable time and effort - it is much appreciated.”
Michael Twist, Global Climate Dollar, gcdollar.com