Sign in to follow this  

The ‘Energy Standard’: A thought experiment in energy-backed money.

Recommended Posts

I’m a reader of Dr Tim Morgan’s Surplus Energy Economics blog. One of his central theses is that economies are energy systems, not monetary ones, and thus money is a claim on energy.

A post by @tomandluabout a currency pegged to the price of energy on the The Bubbly Bitcoin Thread led me to try the following thought experiment:

Imagine a monetary unit backed by a central bank which promises to provide the bearer on demand with a kiloWatt hour of energy in a previously specified form or forms. The value of this energy-backed monetary unit (EBMU) would therefore be fixed at 1kWh. The price of this EBMU in any fiat currency would be the price of 1kWh in that fiat currency.

The principle advantage I see is price stability:

As the capability of a state’s economy to produce energy and thus to produce energy-intensive goods and services increases so the capability of the state’s central bank to back EBMUs with energy increases. In effect, as the productivity of the economy increases so the monetary supply increases, avoiding deflation.

The price of energy is fixed in EBMUs, avoiding energy-price inflation. If the price of energy in a fiat currency rises then the price of the EBMU in that fiat currency rises too.

The EBMU would also offer independence from the petrodollar, which could be appealing for oil-rich countries such as Russia and Iran.

The principal disadvantage (from some perspectives) would be that there would be no ability for a state to devalue its money while on the ‘Energy Standard’.

Any thoughts?

Edited by Will!

Share this post

Link to post
Share on other sites

Energy backed currency was proposed by ecological economist Richard Douthwaite in his book "the ecology of money". One problem with it is that it could encourage more energy carrier production and therefore fossil fuel exploitation in order to expand / maintain the money supply, as gold exploitation was encouraged under the gold standard. Another is that of energy descent (peak oil, coal and gas), which would imply money supply falling as fossil fuel extraction rate falls.

Share this post

Link to post
Share on other sites

That looks like an interesting book, although Douthwaite has his Energy-Backed Currency Units valued in terms of Special Emission Rights with that value guaranteed by some international organisation, whereas I was thinking of EBMUs being valued in energy itself and guaranteed by a state's central bank.

I think we will continue to exploit energy resources for their utility regardless of the money supply.

A falling money supply would be desirable as Energy Return on Energy Invested falls. 

Share this post

Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • Brexit   463 members have voted

    1. 1. Since voting on the UK leaving the EU, have you reconsidered your position?

      • Voted remain, still want to remain
      • Voted remain, now want to leave
      • Voted leave, now want to remain
      • Voted leave, still want to leave

    Please sign in or register to vote in this poll. View topic