THUS Magazine

By Daniel Taghioff, India.

We need a Global Climate Deal right now, but when even a Greeny like Al Gore worked hard to dilute the Kyoto Protocol, you start to wonder if the Americans have a collective death-wish. The answer, of course, is no. But why then the insistence on oil? Why the crazy misadventures in the Middle East, when the time (and money) in between could have been spent on re-fitting our energy systems or getting ready for bad weather? Much though I like having a moan with John Pilger, (each to their own, JK) and have personally enjoyed many a tirade against American power (ibid), one of the things that Climate Change really hammers home that we are all in this together. Hence, perhaps, the rather weak sounding position of the UN’s chief climate negotiator, Yvo de Boer, that Americans have economic interests they need to protect, and that we must to respect this. He is right though. We cannot expect even a relatively worldly President like Obama to ignore these interests. The EU are currently negotiating target carbon emission reductions of up to 40% by 2020, but if America continues to pursue a retrograde energy policy, the developing world can hardly be expected to line up with Europe.

America’s conundrum in relation to oil actually goes right to the base of their power-position in the world. America got into the position of being the main global power in the aftermath of the two great European Civil Wars (WWI and WWII as we like to call them.) The American negotiators were in a position, in the 1945-1948 period, to largely set the terms to the bankrupted powers of the old world. The deal negotiated was not Keynesian, as many say, but was created by the American negotiator, Harry Dexter White.

Keynes recommended a world currency. We got the dollar instead. It was fine for a while but . . .

Two crucial points emerged from this. The first was that, against the advice of Keynes who wanted a new global currency, international finance would be built around the Dollar. The second was that European powers, particularly the British, would start to hand over the international seaways and strategic control of areas such as the Middle East. This was partly through the dismantling of formal Empire, but also through the opening up of key sectors to American investment, oil extraction in the Middle East being an area that emerged as crucial in the subsequent decades.As this new international system bedded in, and as the postwar industrial boom took shape, the link between oil and the dollar emerged. Countries needed a continuous supply of fuel- increasingly oil, and you could only 100% reliably purchase oil in an emergency if you held dollars in your national reserve. Thus the dollar strengthened as a global reserve currency. This was very much as Harry Dexter White had planned it, since it gave the US an ongoing economic advantage. All the dollars that were printed in America and spent abroad meant goods and services for free. That is for as long as they were held abroad and not spent back into the American Economy.

But here lies America’s central problem: These dollars are now sitting abroad in overseas banks, but what happens if the dollar-oil link unwinds, and these overseas dollars come home to roost?  Hyper-inflation of the scariest kind. Even the International Monetary Fund’s insistence that foreign reserves be held in dollars does not re-assure American policy makers when Saddam and OPEC start discussing trading oil in Euros, so this is clearly a major percieved threat.

De-carbonising America is not impossible

Now climate science demands that we move away from an oil-based global economy astoundingly fast, we are talking de-carbonisation rates of 3-6% a year here. To put this in context, the decarbonisation rate of Russia as it collapsed economically under Yeltsin was 1% per year, so this is a huge shift. How could America survive such a rapid lurch away from oil? One way is to make it look like oil can in some way be made green. You stick with the same infrastructure, and keep the trade going by using a liquid fuel with green credentials to try and dilute the impact of your power-base. In other words, you back biofuels. The FAO has just released its State of Food and Agriculture 2008 report, and it is clear that biofuels are part of what is currently pushing up starvation rates around the world.  So the current American strategy looks like building a house of cards (Thus passim) since it involves making the lives of those at the bottom of the Global Economy even more unstable.

There is  another way out but it requires a level of innovative thinking about the economy beyond even that presented in the recent Green New Deal, and way outside the scope of what is being considered in the current economic summits. The only way I can think of avoiding the unwinding of the dollar (which would probably make us all suffer) without sticking to an oil base (which will definitely make us all suffer) is to allow the conversion of foreign reserves of Dollars into a new Global currency. The crucial point is that this conversion process needs to take these overseas dollars out of circulation whilst retaining the value that they held. So the new currency will need to be tradeable for oil in the very short-term, but designed so that in the longer term it phases out international trade in fossil fuels.

I am no expert (look here and here for some), but my main point is that there is a need for this kind of blue sky financial thinking. If we do not in some way take into account the difficult position that America faces and try and find solutions, then America and its rulers will be forced by circumstance to keep us running towards the precipice. Despite people trumpeting the “End of History” and the “End of Ideology” (Thus Passim) we actually need to rethink and to some extent politicise our financial systems in order to get through the roadblock that we face.