TED@State Street Boston
Michael Metcalfe: A provocative way to finance the fight against climate change
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Will we do whatever it takes to fight climate change? Back in 2008, following the global financial crisis, governments across the world adopted a "whatever it takes" commitment to monetary recovery, issuing $250 billion worth of international currency to stem the collapse of the economy. In this delightfully wonky talk, financial expert Michael Metcalfe suggests we can use that very same unconventional monetary tool to fund a global commitment to a green future.
Michael Metcalfe - Financial expert
A senior managing director and head of global macro strategy at State Street Global Markets, Michael Metcalfe provides high quality capital flow research. Full bio
A senior managing director and head of global macro strategy at State Street Global Markets, Michael Metcalfe provides high quality capital flow research. Full bio
Double-click the English transcript below to play the video.
00:13
Will we do whatever it takes
to tackle climate change?
to tackle climate change?
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I come at this question
not as a green campaigner,
not as a green campaigner,
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in fact, I confess to be rather
hopeless at recycling.
hopeless at recycling.
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I come at it as a professional observer
of financial policy making
of financial policy making
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and someone that wonders
how history will judge us.
how history will judge us.
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One day,
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this ring that belonged to my grandfather
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will pass to my son, Charlie.
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And I wonder what his generation
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and perhaps the one that follows
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will make of the two lives
this ring has worked.
this ring has worked.
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My grandfather was a coal miner.
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In his time,
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burning fossil fuels for energy
and for allowing economies to develop
and for allowing economies to develop
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was accepted.
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We know now that that is not the case
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because of the greenhouse
gases that coal produces.
gases that coal produces.
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But today,
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I fear it's the industry in which I work
that will be judged more harshly
that will be judged more harshly
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because of its impact on the climate --
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more harshly than
my grandfather's industry, even.
my grandfather's industry, even.
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I work, of course,
in the banking industry,
in the banking industry,
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which will be remembered
for its crisis in 2008 --
for its crisis in 2008 --
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a crisis that diverted the attention
and finances of governments
and finances of governments
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away from some really, really
important promises,
important promises,
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like promises made at the Copenhagen
Climate Summit in 2009
Climate Summit in 2009
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to mobilize 100 billion dollars a year
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to help developing countries
move away from burning fossil fuels
move away from burning fossil fuels
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and transition to using cleaner energy.
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That promise is already in jeopardy.
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And that's a real problem,
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because that transition
to cleaner energy needs to happen
to cleaner energy needs to happen
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sooner rather than later.
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Firstly,
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because greenhouse gases, once released,
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stay in the atmosphere for decades.
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And secondly,
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if a developing economy builds
its power grid around fossil fuels today,
its power grid around fossil fuels today,
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it's going to be way more costly
to change later on.
to change later on.
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So for the climate,
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history may judge
that the banking crisis happened
that the banking crisis happened
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at just the wrong time.
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The story need not be this gloomy, though.
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Three years ago,
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I argued that governments
could use the tools
could use the tools
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deployed to save the financial system
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to meet other global challenges.
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And these arguments are getting
stronger, not weaker, with time.
stronger, not weaker, with time.
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Let's take a brief reminder
of what those tools looked like.
of what those tools looked like.
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When the financial crisis hit in 2008,
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the central banks of the US and UK
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began buying bonds issued
by their own governments
by their own governments
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in a policy known
as "quantitative easing."
as "quantitative easing."
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Depending on what happens
to those bonds when they mature,
to those bonds when they mature,
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this is money printing by another name.
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And boy, did they print.
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The US alone created four trillion
dollars' worth of its own currency.
dollars' worth of its own currency.
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This was not done in isolation.
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In a remarkable act of cooperation,
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the 188 countries that make up
the International Monetary Fund, the IMF,
the International Monetary Fund, the IMF,
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agreed to issue 250 billion
dollars' worth of their own currency --
dollars' worth of their own currency --
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the Special Drawing Right --
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to boost reserves around the world.
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When the financial crisis moved to Europe,
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the European Central Bank
President, Mario Draghi,
President, Mario Draghi,
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promised "to do whatever it takes."
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And they did.
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The Bank of Japan repeated those words --
that exact same commitment --
that exact same commitment --
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to do "whatever it takes"
to reflate their economy.
to reflate their economy.
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In both cases,
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"whatever it takes" meant
trillions of dollars more
trillions of dollars more
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in money-printing policies
that continue today.
that continue today.
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What this shows
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is that when faced
with some global challenges,
with some global challenges,
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policy makers are able to act
collectively, with urgency,
collectively, with urgency,
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and run the risks of unconventional
policies like money printing.
policies like money printing.
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So, let's go back
to that original question:
to that original question:
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Can we print money for climate finance?
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Three years ago,
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the idea of using money in this way
was something of a taboo.
was something of a taboo.
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Once you break down and dismantle the idea
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that money is a finite resource,
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governments can quickly get overwhelmed
by demands from their people
by demands from their people
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to print more and more
money for other causes:
money for other causes:
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education, health care, welfare --
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even defense.
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And there are some truly terrible
historical examples of money printing --
historical examples of money printing --
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uncontrolled money printing --
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leading to hyperinflation.
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Think: Weimar Republic in 1930;
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Zimbabwe more recently, in 2008,
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when the prices of basic goods
like bread are doubling every day.
like bread are doubling every day.
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But all of this is moving
the public debate forward,
the public debate forward,
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so much so, that money printing
for the people is now discussed openly
for the people is now discussed openly
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in the financial media, and even
in some political manifestos.
in some political manifestos.
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But it's important the debate
doesn't stop here,
doesn't stop here,
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with printing national currencies.
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Because climate change
is a shared global problem,
is a shared global problem,
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there are some really compelling reasons
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why we should be printing
that international currency
that international currency
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that's issued by the IMF,
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to fund it.
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The Special Drawing Right, or SDR,
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is the IMF's electronic unit of account
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that governments use to transfer
funds amongst each other.
funds amongst each other.
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Think of it as a peer-to-peer
payment network,
payment network,
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like Bitcoin, but for governments.
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And it's truly global.
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Each of the 188 members
of the IMF hold SDR quotas
of the IMF hold SDR quotas
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as part of their foreign
exchange reserves.
exchange reserves.
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These are national stores of wealth
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that countries keep to protect
themselves against currency crises.
themselves against currency crises.
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And that global nature is why,
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at the height of the financial
crisis in 2009,
crisis in 2009,
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the IMF issued those extra
250 billion dollars --
250 billion dollars --
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because it served
as a collective global action
as a collective global action
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that safeguarded countries
large and small in one fell swoop.
large and small in one fell swoop.
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But here --
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here's the intriguing part.
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More than half of those extra SDRs
that were printed in 2009 --
that were printed in 2009 --
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150 billion dollars' worth --
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went to developed market countries
who, for the most part,
who, for the most part,
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have a modest need
for these foreign exchange reserves,
for these foreign exchange reserves,
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because they have flexible exchange rates.
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So those extra reserves
that were printed in 2009,
that were printed in 2009,
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in the end, for developed
market countries at least,
market countries at least,
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weren't really needed.
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And they remain unused today.
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So here's an idea.
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As a first step,
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why don't we start
spending those unused,
spending those unused,
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those extra SDRs
that were printed in 2009,
that were printed in 2009,
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to combat climate change?
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They could, for example,
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be used to buy bonds issued
by the UN's Green Climate Fund.
by the UN's Green Climate Fund.
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This was a fund created in 2009,
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following that climate
agreement in Copenhagen.
agreement in Copenhagen.
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And it was designed to channel funds
towards developing countries
towards developing countries
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to meet their climate projects.
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It's been one of the most
successful funds of its type,
successful funds of its type,
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raising almost 10 billion dollars.
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But if we use those extra
SDRs that were issued,
SDRs that were issued,
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it helps governments get back on track,
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to meet that promise
of 100 billion dollars a year
of 100 billion dollars a year
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that was derailed by the financial crisis.
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It could also --
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it could also serve as a test case.
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If the inflationary consequences
of using SDRs in this way are benign,
of using SDRs in this way are benign,
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it could be used to justify
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the additional, extra issuance
of SDRs, say, every five years,
of SDRs, say, every five years,
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again, with the commitment
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that developed-market countries
would direct their share
would direct their share
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of the new reserves
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to the Green Climate Fund.
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Printing international money
in this way has several advantages
in this way has several advantages
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over printing national currencies.
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The first is it's really easy to argue
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that spending money to mitigate
climate change benefits everyone.
climate change benefits everyone.
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No one section of society benefits
from the printing press over another.
from the printing press over another.
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That problem of competing
claims is mitigated.
claims is mitigated.
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It's also fair to say
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that because it takes so many countries
to agree to issue these extra SDRs,
to agree to issue these extra SDRs,
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it's highly unlikely that money printing
would get out of control.
would get out of control.
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What you end up with
is a collective, global action
is a collective, global action
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aimed -- and it's controlled
global action --
global action --
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aimed at a global good.
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And,
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as we've learned
with the money-printing schemes,
with the money-printing schemes,
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whatever concerns we have
can be allayed by rules.
can be allayed by rules.
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So, for example,
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the issuance of these extra SDRs
every five years could be capped,
every five years could be capped,
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such that this international currency
is never more than five percent
is never more than five percent
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of global foreign exchange reserves.
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That's important because it would allay
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well, let's say, the ridiculous
concerns that the US might have
concerns that the US might have
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that the SDR could ever challenge
the dollar's dominant role
the dollar's dominant role
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in international finance.
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And in fact,
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I think the only thing that the SDR
would likely steal from the dollar
would likely steal from the dollar
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under this scheme
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is its nickname, the "greenback."
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Because even with that cap in place,
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the IMF could have
followed up its issuance --
followed up its issuance --
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its massive issuance of SDRs in 2009 --
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with a further 200 billion
dollars of SDRs in 2014.
dollars of SDRs in 2014.
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So hypothetically,
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that would mean that developed countries
could have contributed
could have contributed
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up to 300 billion dollars' worth of SDRs
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to the Green Climate Fund.
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That's 30 times what it has today.
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And you know,
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as spectacular as that sounds,
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it's only just beginning to look
like "whatever it takes."
like "whatever it takes."
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And just to think what amazing things
could be done with that money,
could be done with that money,
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consider this:
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in 2009,
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Norway promised one billion dollars
of its reserves to Brazil
of its reserves to Brazil
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if they followed through
on their goals on deforestation.
on their goals on deforestation.
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That program has since delivered
a 70 percent reduction in deforestation
a 70 percent reduction in deforestation
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in the past decade.
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That's saving 3.2 billion tons
of carbon dioxide emissions,
of carbon dioxide emissions,
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which is the equivalent of taking
all American cars off the roads
all American cars off the roads
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for three whole years.
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So what could we do
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with 300 other pay-for-performance
climate projects like that,
climate projects like that,
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organized on a global scale?
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We could take cars off the roads
for a generation.
for a generation.
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So,
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let's not quibble about whether we can
afford to fund climate change.
afford to fund climate change.
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The real question is:
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Do we care enough about future generations
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to take the very same policy risks
we took to save the financial system?
we took to save the financial system?
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After all,
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we could do it,
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we did do it
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and we are doing it today.
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We must, must, must do
"whatever it takes."
"whatever it takes."
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Thank you.
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(Applause)
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ABOUT THE SPEAKER
Michael Metcalfe - Financial expertA senior managing director and head of global macro strategy at State Street Global Markets, Michael Metcalfe provides high quality capital flow research.
Why you should listen
Michael Metcalfe leads State Street Global Markets Macro Strategy team, focusing on how the behavior of investors and online retailers can help with investment decisions. In this role, he regularly consults with many of the world’s largest institutional investors as well as policy makers. He develops tools to help analyze markets, and regularly advises portfolio managers from some of the world’s largest pension and hedge funds.
Michael Metcalfe | Speaker | TED.com