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Brendan Smith: How green paper gold could bail out the planet

Guardian Economics 4th February 2009

As the rag-tag army of social movement activists, NGO representatives and other advocates from global civil society wend their way home from the Amazonian city of Belem, Brazil, and the World Social Forum (WSF), they have reason to believe they have won the debate on globalisation. Global economic catastrophe and global climate catastrophe have demonstrated to people the world over – including the new president of the United States – that unfettered capitalism is leading to unfettered disaster.

Yet to many ears, the WSF's rallying cry "Another world is possible" sounds like a hollow slogan. However compelling their critique, does this motley crew really have anything worthwhile to propose to address the ills of globalisation?

Perhaps. Consider one concrete proposal:

There is growing international support for fighting global economic stagnation and global warming simultaneously with a "green New Deal". Investing to cut greenhouse gases can create "green jobs" and provide fiscal stimulus while protecting the planet. But how is it going to be paid for? The answer: green paper gold.

In 1969, national governments gave the International Monetary Fund (IMF) the right to create Special Drawing Rights (SDRs), often referred to as "paper gold". Nobel laureate economist Joseph Stiglitz says that SDRs are "a kind of global money, issued by the IMF, which countries agree to accept and exchange for dollars or other hard currencies".

Stiglitz has proposed that paper gold be issued for investment in "global public goods" such as health initiatives and humanitarian assistance. Today, with trillions of dollars sloshing around the world bailing out the financial sector and ailing industries, it is time to direct a portion of this money to create "green gold" to help finance a global war on climate change.

Surely nothing could better qualify as a global public good than saving the planet from ruinous climate change. And at the same time, this green gold could provide some of the stimulus needed to move the global economy out of its deepening stagnation. It would help pay for energy conservation, mass transit, research, development and investment in sustainable energy, technology transfer to low-income countries and climate change adaptation.

Green gold should not be funnelled through the IMF but rather through some new entity with an appropriate overseer, such as the United Nations Environmental Program (UNEP). Its authoritative scientific committee, the Intergovernmental Panel on Climate Change (IPPC), should certainly play a major role in setting criteria and evaluating the results.

Countries would apply for funding to implement their national plans to reduce greenhouse gas emissions. In order to qualify, each country would be required to meet its international commitments to reduce greenhouse gases. Complete transparency in allocating and contracting could be a further condition for receiving money.

How big should a green gold program be? Estimates are that $500bn – or less than half of the global stimulus package the IMF is currently calling for – would cover the annual cost of protecting the world's climate.

In terms of job creation, economic stimulus and support for long-term growth – not to mention warding off climate disaster – nothing is likely to provide bigger benefits than investment in climate protection.

If the world can spend trillions of dollars to bail out the banks, why can't we use green gold to create desperately needed green jobs – and bail out the planet?

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