Jay - I think you'll like this newly proposed alternative currency. What's you take?
Co-creator of the euro offers 'terra', currency backed by about a dozen commodities, such as oil, grains and metals
By Aldo Svaldi Denver Post Business Writer
A co-architect of the euro, Bernard Lietaer, will unveil a new global currency called the "terra" next week in Denver as an antidote to a worsening economic slump.
For Lietaer, alternatives need to be found to the current "faith-based" money system or else the U.S., Europe and the rest of the world risk following Japan down the path of economic stagnation.
"Dropping interest rates and increasing the money supply has proven it doesn't work," Lietaer said, commenting on the current U.S. strategy to revive its economy.
The Japanese have increased their money supply 30 percent a year and have dropped interest rates to 0 percent over 12 years without reviving their economy.
Massive deficit spending, public work projects and voucher programs have all failed to bring a lasting recovery to the world's second-largest economy, he said.
One solution, which Lietaer will detail at the Future of Money Summit at the Omni Interlocken Resort Wednesday, is to create a currency backed by about a dozen commodities, such as oil, grains and metals.
The summit is a gathering of futurists and strategists in the money world who will discuss topics such as security of the money supply, banking fees, smart cards that store money and new technologies such as payment by fingerprint.
Lietaer emphasizes that the terra is not designed to replace national currencies such as the dollar, yen or euro. Consumers won't see paper terras in their pockets because the terra would remain entirely electronic, with distribution through Internet accounts.
But the average person should benefit if the currency can smooth business cycles and reduce the bouts of inflation and deflation that have plagued the global economy since currencies were allowed to float freely in 1971, he said.
A stable trading currency would eliminate the large costs corporations incur to protect against fluctuations in the value of the goods and services they trade.
It should also benefit commodity-dependent emerging countries. Those countries have seen outside investments fall by one-third since the last vestiges of a gold-based money system were abandoned, he said.
To get around the volatility in currencies, more international trade is occurring as barter or the direct exchange of goods.
Barter-like arrangements account for $1 trillion in international trade a year and are growing at a 15 percent pace.
"The terra is simply a standardization of international barter," Lietaer said.
MONEY MATTERS
"'Future of Money Summit" will take place Monday through Wednesday at the Omni Interlocken Resort in Broomfield.
The featured speakers will be "Megatrends" author John Naisbitt and Bernard Lietaer, co-architect of the euro.
Cost is $1,495.
For more information, call 303-666-4133 or e-mail info@davinciinstitute.com
Still, the terra smacks of the old gold standard, which was abandoned for good reasons, notes Jim Moffett, portfolio manager of the UMB Scout WorldWide Fund.
Moffett notes that commodities themselves can be highly volatile, and currencies based on them carry their own set of problems.
"The issue isn't if the current system has weaknesses, but if you can come up with something truly better," said Sanjai Bhagat, a finance professor at the University of Colorado's Leeds School of Business.
New currencies such as the terra won't fix every problem, Lietaer acknowledges. They are meant to complement existing currencies.
"All economic textbooks define what money does but not what it is. They always talk about functions of money," he said. "My definition of money is an agreement within a community to use something as a medium of exchange."
In the U.S., the best-known examples of complementary currency are the airline miles offered by frequent flier and credit card programs. Airlines reward customer loyalty with miles that can be redeemed for flights, car rentals, hotel rooms and even magazine subscriptions.
More than 4,000 complementary currencies are now in circulation, with Japan leading the way as citizens try to escape a prolonged downturn.
Lietaer began working on the euro in 1978 while at the Central Bank of Belgium. The hardest part was not coming up with one currency, but getting 15 countries to agree how that currency should work, he said.
He recently moved to Boulder to create a business program at Naropa University and has established the Access Foundation locally to study complementary currencies.
He see social needs as driving many of the new currencies, but doesn't expect acceptance to come quickly. He believes the terra could be a functioning currency within five to 10 years versus the 23 years the euro required.
"It is much easier to design a currency than to sell it," he said.
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