Money, Interest and Environment

Ahamed Kameel Mydin Meera

In the recent UN climate change conference in Bangkok, scientists from all over the
world concluded that the earth is in peril, caused primarily by the actions of mankind
!he Intergovernmental "anel on #limate #hange $I"##% warned that the atmospheric and
environmental pollution and the conse&uences thereof on climate change can have
devastating effects if proactive mitigation actions were not taken immediately
!he main reason for the environmental destruction could be nothing but economic greed,
devoid of environmental'conse&uences considerations !his article argues how the
monetary system itself contributes to the environmental destruction
Many academics have linked in detail the monetary system to the environmental
destruction particularly deforestation, global warming and climate change At the bottom
of the problem is the nature of interest in the fiat monetary system (hile fiat money is
money not backed by gold or anything of value, interest charges in this system have some
uni&ue and important characteristics relevant for the argument !hree of them are
pertinent here
)irstly, debt cannot be repaid in total, ie principal plus interest, in the aggregate at any
given time !his is because the interest portion that need to be paid along with the
principal does not e*ist in the form of money in the economy !he implication of this is
that, in the aggregate, interest payments can only paid in real terms, ie goods, services or
other assets including those placed as collateral for the loans !his is the reason why, in
the aggregate economy, debt default is by the design of the system
+econdly, debt service $ie the repayment of principal plus interest% is considered as a
riskless cashflow since the borrower is obligated to pay back, as per the contract,
according to a predetermined repayment schedule But nonetheless, the business world is
a risky world !his brings about a mismatch, in terms of their risk profiles, between the
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nature debt'money and the real economy which it is supposed to facilitate And it is
important to note that indeed, in most if not all countries, debt'money ie money created
in the form of loan constitutes a much higher proportion in their monetary aggregates
!he third characteristic of interest that is pertinent to our discussion is that it is in counter
to the physical law of entropy, a law of thermodynamics that refers to the tendency of
physical systems to move towards greater disorder According to this law, order can be
maintained or increased through the consumption of energy and matter from outside the
system !he rotting of food, the decaying of dead bodies, the depreciation of assets etc
are e*amples of enthrophy when new energy and matter are not consumed
Applying the concept to economics, in a barter economy for e*ample, when a farmer
does not consume part of the paddy he had harvested, it would represent as his savings in
the real form If he does not invest it by replanting, then over time, the seeds can rot due
to the entropy process, and become not suitable for consumption or further investment
But however, the entropy process can be reversed so as to achieve greater order by
replanting the seeds, for e*ample !herefore, by taking energy from the sun and matter
from earth, a greater order is achieved, in the form of plant, fruit, seed etc Accordingly,
in the real physical economy, savings that is not .invested/ can deteriorate (hile
investing on the other hand, of course, involves risks, like what if, for e*ample, the
replanted seeds die due to draught etc !herefore savings in the real economy that is not
invested by taking on risks would fall in value due to entropy
Interest charges violate this principle (hen money is saved, it actually should represent
something in the real economy that is being saved (hile those real things would
e*perience entropy, money saved in the present system increases in value due to interest0
!his fact is further worsened in a fiat monetary system where money and interests are all
.virtual/ !his is why some development economists tell us that a negative interest rate is
necessary to achieve sustainable economic development Negative interest rate implies
that if one saves and does not wish to take risks of investing the savings then the value of
the savings should fall over time !his then matches the entropy law But in today/s
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monetary system one is able to save without taking on any risks and still earn interest
income0 !herefore, money and interest in a fiat money system indeed go against the
natural order where the real economy works
Now the working of those three characteristics of interest in the international economy is
of concern (hen countries, particularly the developing nations, borrow internationally
they should remember the three implications for the aggregate global economy2 1 !he
loans are not repayable in total at any given time 3 +ome countries are bound to default
4 !he interest portion and defaults can be only repaid in real term
5ence developing nations that borro oney from international financial institutions like
IM) and (orld Bank must remember that collectively their loans are not repayable and
therefore some nations got to default and likely to plunder further their natural resources
in the attempt to repay the loans
!he developing nations being generally not industriali6ed nations, would service their
debt using agricultural products or natural resources available Accordingly, countries
with forests would tend to deplete them in their attempt to pay off their e*ternal debt
+uch deforestation, in turn, have been linked to global warming and climate change As
mentioned earlier many academics have provided detailed evidence for e*ternal debt as
being a cause of deforestation A simple evidence is provided below !he table below
provides the data for the top twenty deforesters in the world and the relationship between
deforestation and e*ternal debt for the period 177- to 3--8 !he correlation strength
between deforestation and the increase in e*ternal debt is indeed a high value of -9,8
+ince most money in the present fiat monetary system is created .virtual/ in the form of
debt that carries with it compounding interest charges, this demands the economy to keep
.working/ to pay back that virtual loan plus the non'e*istent interest money !he system
basically causes the plundering natural resources, ie transforms real wealth that is in the
form of trees, health etc into virtual wealth, like electronic records as money
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!he I"## report says that greenhouse gas emissions had risen by ,-: since 17,- $about
the time when total fiat global monetary system started%, and will rise by between 38:
and 7-: over the ne*t 38 years under present scenario #arbon dio*ide $#;3% emissions
greatly contributes towards this, brought about by mainly the use of fossil fuels in
industries and automobiles <eforestation, on the other hand, shrinks the e*isting natural
mechanism that absorbs #;3 from the atmosphere and release o*ygen $;3% that living
things need for survival
20 Top Deforesters and Their External Debt
1995 - 2005


Total Forest
Cover
Annual
Deforestation
Total
Deforestation
Increase in
External Debt
Country Area, 2005 1990-2005 1990-2005 1990-200
!1000 "a# "a $ %&
1 'ra(il ))*9+ -2+219,, -+-1 1020*2
2 In.onesia ++95 -1+)1*) -2-1 )0)))
3 /yan&ar ,2222 -***) -1)-+ 25
4 D-0- Con1o 1,,*10 -*100 --9 15+2
5 2a&bia 252 -+00 -1,-* ,)
6 Tan(ania ,525) -122*) -1-9 1,5
7 3i1eria 110+9 -09**) -,5-) 251
8 /exico *2,+ -,1+5,, -*-9 ,2)
9 2i&bab4e 1)50 -,129,, -21-1 151+
1
0 5ene(uela ))1, -2+)5,, -+-, 2,99
1
1 'olivia 5+)0 -2)0,,, -*-5 1+21
1
2 6"ili77ines )1*2 -22)*) -,2-, 299)0
1
3 Ca&eroon 2125 -220000 -1,- 2+,9
1
4 Ecua.or 10+5, -19)*00 -21-5 )*1
1
5 8on.uras *+ -1+2*) -,)-1 2*1
1
6 Ca&bo.ia 10) -1***00 -19-, 15,2
1
7 6a7ua 3e4 9uinea 29,) -1,90*) -*-* -5
1
8 9"ana 551) -12+),, -25-9 ,,01
1
9 An1ola 5910 -12+00 -,-1 929
2
0 /alaysia 20+90 -990*) -*-* ,*+1)
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o!r"e# Food and Agriculture Organization of the U.N.: The State of the World's Forests 2003 !"ternal de#t data fro$
World %e&elo'$ent (ndicators 200) World *an+.
The correlation strength #et,een Annual %eforestation and the (ncrease in !"ternal %e#t is 0.-./
Interest charges in the monetary system contributes to both sides, ie to .overwork/ the
industries since money is scarce and thereby encourage competition and contributing to
deforestation since interest charges must ultimately be paid in real terms Many of the
highly indebted countries are not even able to service the interest portion of their debt
5ence it is of surprise that they tend to plunder their forests indiscriminately in their
attempt to pay'off their loans
=ven though billionaire +ir >ichard Branson and former U+ vice president Al ?ore have
launched a multi'million dollar competition to come up with an innovation that can
remove carbon from the atmosphere, I cannot think of a better way than preserving and
replanting forest trees to do the @ob
In my opinion, firstly the world must urgently revamp its global monetary system
in order to bring it in'tune with the natural order !his, of course, can be very tricky in
current global circumstances Additionally, governments should stress on afforestation,
reforestation, reduced deforestation and encourage the use of non'fossil renewable energy
sources
;n the sideline, recently the "rime Minister Abdullah Ahmad Badawi called upon
for new homes to be constructed with built'in rain water catchers !his indeed is an
e*cellent idea considering the fact that fresh'water is e*pected become a very scarce
resource in the near future In the same tone, perhaps the government could encourage
the public to go for alternative non'fossil fuels like biodiesel, solar, wind, hydroelectric
and even geothermals if there/s any possibility !he government for a start could, for
e*ample, give ta* benefits for the production, distribution and customer installation of
solar panels, for e*ample 5omes fitted with solar panels would considerably reduce the
use of energy from fossil fuels
+cientists tell us that fossil fuels significantly come from the .pea'brained/
dinosaurs that once ruled the earth for a period of appro*imately 3-- million years, and
which have been e*tinct for about A8 million years before the emergence of man on earth
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But mankind, likely the most intelligent being ever, has been on earth relatively for only a
very short period !he +tone'Age, when he was dwelling in caves, was only about
3-,--- years ago But at the current state of global affairs, it/s obvious that this
intelligent man could not even, for a short period, take care of his only planet of dwelling,
losing to the dinosaurs/ multiple folds (hat shame
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