For thousands of years gold and silver coins were used as a medium of exchange. The practical use of the two precious metals was for jewellery, artefacts and coins. The value of the metals was maintained because they had to be mined from the ground, making their supply reasonably stable and predictable. Counterfeiting was difficult and was punished severely.
In 1971 the fixed value of the US dollar against gold was abandoned. The value of the US dollar against gold plummeted and remains volatile to this day. In parallel, governments realised that since paper money did not need be exchangeable for a fixed weight of gold or silver they could print money with impunity. For years the USA has done so and in recent years other central banks have also printed money on a huge scale. Printing money, euphemistically known by politicians, bankers and some economists as ‘quantitative easing’, has been embraced by governments as a quick fix to get their economies growing in monetary terms because more money is awash in the economy.
A sounder course of action would be to give money real value by making it represent a claim on energy. This would be done by denominating it in units based on kilowatt hours. For short-hand, I call this currency the Roine.
The starting point is that supply of fossil fuels that powered the industrial revolution of the nineteenth and twentieth centuries has begun to wane and alternative energy sources, notably renewables, show little sign of being able to fill the gap. The other main option, nuclear energy, poses huge technical problems both of generation (Three Mile Island 1979, Chernobyl 1986 and Fukushima 2011), decommissioning and of storing spent nuclear fuel with a half-life lasting centuries or millennia.
Civilisation depends on energy for agriculture, manufacturing, lighting, heating, transport, communication and information technology – in effect for everything that enables our continued present existence. At current rates of consumption, oil and gas may last only about 64 years. Coal reserves will last longer but are more polluting. Fracking may provide a stop-gap remedy.
Denominating money in Roines would not generate more energy but it would relate the amount of Roines in circulation to the amount of energy entering the system. All consumers, both industrial and domestic, would recognise the need to economise on their consumption of energy so as to have more Roines left over for other purchases. At the same time, the power of governments and central banks to print money would be removed. The price of fuel bills, denominated in Roines, would be stable.
When new reserves of fossil fuels are discovered or more atomic or other power plants are commissioned, more Roines would enter the system, not as valueless paper money but as real wealth to raise living standards. If fundamentally new forms of power generation were discovered – say nuclear fusion using thorium – there could be a massive increase in the availability of real energy so that people could more readily run gas-guzzling cars and take holidays based on cheap travel. Conversely, when the supply of energy decreased, the opposite would occur. In the future, nation-states in particular and the world in general will be only as rich or poor as the amount of energy that can be generated from whatever sources. Roines would reflect this truth reliably.
There is much current interest in Bitcoin. The value of this cyber currency is speculative and can fluctuate dramatically. Further, since the ‘central bank’ that generates Bitcoin is anonymous it potentially offers huge prospects for the enrichment of the ‘central bankers’ concerned who are at liberty to issue Bitcoin as and when and in whatever quantitites they wish. By contrast, Roines would be a fully transparent currency issued by a non-political authority whose volume would correctly reflect the availability of the energy that Roines can buy in the energy market.
British sterling notes bear, in tiniest letters, a meaningless pledge by the Bank of England’s Chief Cashier: ‘I promise to pay the holder on demand the sum of (twenty) pounds’. What is needed is a promise to provide the holder with a defined number of kilowatt hours of energy. Roines would serve all today’s functions of money but would have true underlying value. The power of politicians and central bankers to print money would end and consumers would have an increased awareness of the need to economise on the world’s most precious resource or, better still, to increase its supply. Energy is the lifeblood of civilisation.
Ian Senior is the author of Time and Energy, published by emp3 books.