Nature Based Currencies

Integrating Natural Capital in Advanced Monetary Systems

September 14, 2023Published by Open Earth

“Regenerative” economies integrate the value of living ecosystems within monetary systems, and are vital to prevent ecological collapse, say digital finance researchers. In this white paper for the research foundation Open Earth, the authors explore how central banks could design a nature-based digital currency to support economic stability, human wellbeing and planetary health.

The “extractive paradigm” of traditional economics prioritises what can be extracted from nature and overlooks the need for ecological stability. The authors point out that extraction-based growth cannot be sustained endlessly on a planet with finite and dwindling biocapacity, the planet’s ability to generate an on-going supply of renewable resources and absorb waste.

Since 1971, biocapacity has been exceeded by consumption, which has led to an accumulating deficit of value and systemic biodiversity-related financial risks.

“Regenerative economics” recognises that healthy, living ecosystems are indispensable to sustain human life and replenish the resources the global economy depends upon. Nature is understood as a group of protected assets that retain value when kept intact over time.

The authors say that extractivist economics has also jeopardised the stewardship of Indigenous communities, who have proven to be the most effective governors of natural assets. This is exacerbated by the fact that many nature-rich countries in the global south face unsustainable debt which incentivises them to exploit natural resources and encroach upon Indigenous land.

The authors propose nature-based central bank issued digital currencies (NB-CBDC), which use natural capital as a reserve asset to back the currency, as a tool to address these issues. They say a currency that utilises decentralised ledger technology, such as blockchain, could enable financially struggling states to protect their ecosystems and the livelihoods of local stewards.

The overall aim is to put nature on the nation’s balance sheet as a living financial asset which dynamically derives value in relation to its ongoing socio-ecological health. The authors emphasise the importance of continuous accounting to track the health of underlying natural assets. If these assets (or the livelihoods of those who directly depend on them) deteriorate, the currency’s value is eroded, which the authors say is analogous to dynamic risk adjustments.

One way the authors propose leveraging NB-CBDCs to achieve conservation and climate goals is to enable private corporations to borrow in these currencies to help pay for environmental performance improvements or green financial instruments. These instruments include environmental securities, such as nature treasury bills and a vast range of advanced ecological credits or eco-credits.

Central banks can stabilise the economy while improving their ability to “green steer” it by performing market operations over eco-credits, for example. In response to environmental shocks, central banks may decide to apply tools based on NB-CBDCs to influence the pace of economic development and the production of eco-credits.

Using natural assets to back the NB-CBDCs should, the authors say, be accompanied by legal protection for the sovereignty of affected ecosystems and communities. They identify possible unintended consequences of exposing natural assets to market dynamics and stress that regenerative objectives must be prioritised to avoid repeating the systemic risks of extractivism.

They state that the decentralised nature of the technology can be utilised to integrate “polycentric governance” structures, ensuring those closest and most dependent on the resources are embedded in decision making. Additionally, a “programmable currency” can be designed to impose restrictions on use and ensure it is spent solely on nature positive projects.

This page was last updated September 14, 2023

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