Banking on Energy (Rather than Currency or Gold)

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"The concept is extremely simple, and it is that international trade should be denominated not in dollars, but in energy."

China's increasing impatience with the dollar as a global reserve currency is now quite overt and specific. Zhou Xiaochuan - the Chinese Central Bank governor - has published a thoughtful essay proposing that the IMF should take on the role envisaged by Keynes at Bretton Woods in 1944 as the issuer of a global reserve currency, Keynes' "Bancor."

At a conference in Tehran in January, I made a proposal in respect of an "Energy Standard" for international trade. The concept is extremely simple, and it is that international trade should be denominated not in dollars, but in energy. Producers of energy, such as Russia and Iran, may then - in exchange for value received - issue Units redeemable either in electricity or in "energy vector" fuels, such as gasoline, heating oil, fuel oil and above all natural gas, which all have a fixed value denominated in energy.

Global transactions will then take place within the framework of an International Energy Clearing Union subject to the collective guarantees of energy producer and consumer nations generally. Both energy creditor nations and energy debtor nations would all pay an amount into a global "energy pool" in support of the guarantee. The resulting balances would be deployed in massive investment in new renewable energy infrastructure and energy efficiency savings.

The unitization of gasoline allows its price to be raised to global levels, and for the population to be compensated with Units redeemable for gasoline but priced in energy dollars or "Petros." While some will continue profligate use of gasoline, most will cut back on gasoline use and exchange their Units for something else of value, again by reference to, rather than in exchange for, the Petro.

I believe that it is only through the use of an energy standard - rather than a fiat currency or gold - that the transition from carbon-based fuels to renewable energy may be painlessly made, and in so doing, allow the US, and other nations to repay their energy, and other resource debts.

So I will conclude by saying that oil is not priced in dollars: dollars are priced in oil, and recommending that the G20 turn their attention to leading a sustainable International Energy Clearing Union alternative to our current demonstrably unsustainable global monetary system.

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