Book Club

The Chair read for you Une monnaie écologique by Alain Grandjean and Nicolas Dufrêne

Published on 25 January 2021

At a time when climate change is threatening our societies, the collective response seems to be insufficient. Every day that passes without a proportionate response to the challenges ahead, we are plunging further into uncertainty about the consequences of the degradation of our environment.

For Alain Grandjean and Nicolas Dufrêne, governments’ inaction could be explained by the lack of financial resources in a world where most greenhouse gas emitting countries are already heavily indebted. Their book, “Une monnaie écologique” [1]  (An ecological money), attempts to introduce us to the mysteries of the monetary economy, often the prerogative of a few experts, and presents it as a way to avoid the climate crisis. The first part draws a historical portrait of the money’s specificities, which have shaped today’s economic system. The book pedagogically dissects the main macroeconomic theories in order to allow all readers to understand the arguments for changing the monetary paradigm. We thus witness the demystification of certain doctrines, which would hinder the use of money to its full potential. Second, it proposes different solutions to change the role of banks and States in order to enable the ecological transition. More than a rigorous demonstration, this second part sets the debate and opens the discussion, with the aim of freeing the “monetary magic” from the chains that we have progressively imposed on it.

“Une monnaie écologique” makes a critical and irrevocable statement on the inadequacy of the current monetary system. Encouraged for a long time, austerity has forced States to take little action favoring the climate. However, pursuing the ecological transition will require colossal investments, notably to clean the transportation means, to decarbonize the energy sector and to improve the current agricultural model. This promised green growth in a distant future would result immediately in greater debt. To avoid the dilemma of having to “do more for the environment with less financial means”, Grandjean and Dufrêne suggest getting rid of the dogmatic control of public debt in order to restore a rational budget management and foster investments.

By building on several historical examples, namely the reconstruction of inter-war Germany, the Thirty Glorious Years in France, the American New Deal and finally the Chinese expansionist monetary policy, the book demonstrates the power of the monetary tool to revive weak economies. Conversely, it points out the inefficiency of the current financial system in directing capital to preserve invaluable ecosystem services. Therefore, the definition of a taxonomy that clearly distinguishes investments that are compatible with the environment from “brown” investments is a pivotal prerequisite when examining the contemporary economy.

This book also analyzes the positioning of Central Banks. From powerful institutions supporting their States, their role has gradually faded to focus only on price stability through the setting of reference rates. It would therefore be an essential to question this “lazy mandate”, which translates independence into powerlessness and tends to reproduce an unequal and environmentally unfavorable situation. In their book, Grandjean and Dufrêne reaffirm their support for a more political mandate as already stated by the last two Governors of the European Central Bank, Mario Draghi and Christine Lagarde. The authors put forward a money creation targeted towards projects compatible with the Paris Climate Agreement, which would not only make it possible to achieve the secondary objectives originally entrusted to the ECB – including the protection of the environment and the improvement of its quality – but would also not yield to the electoral vision of nationally elected representatives.

Following the identification of market failures and institutional dysfunctions, more ambitious monetary policies are expressed to conclude this book. It gives an overview of possible measures such as the cancellation of public debt held by the ECB in return for green investments, the fundamental role of public investment banks financed by very long-term interest-free loans, the creation of a free and digitalized central currency available to households and businesses, and the establishment of an international reserve currency with a view to assisting less developed countries in their transition. While these original proposals may seem a bit fanciful at first glance, dismissing them out with a wave of the hand would be contrary to the logic of the book, which questions untouchable rules and which campaigns for the end of monetary taboos.

“Une monnaie écologique” is unquestionably a perfectly suited book for those interested in the possibilities offered by the monetary tool. One can appreciate its didactic approach and the quality of the synthesis on the shortcomings of the current financial system to support the ecological transition. Emphasis is placed on concrete proposals for remedying these shortcomings by considering both the economic consequences and the institutional and legislative obstacles that could limit their implementation, while at the same time depicting the actors involved and their positioning. However, we may often regret arguments putting forward economic growth and consumption, questioning the sobriety of our way of life only at the very end of the book. Similarly, the blind and unrealistic confidence in the capacity of democracy to change the mandate of monetary institutions and to take over their management within a timeframe compatible with the climate emergency weakens the general purpose but opens up the essential question of governance.

Finally, Grandjean and Dufrêne’s image of the situation explicitly targets the European institutions, already widely criticized for their technocratic aspect and their complex organization, even though they are at the heart of the solutions they propose. Without meaning to, they push these same institutions into the arena of a democratic debate on the basis of their existence – which takes away a part of the monetary sovereignty that the states used to have – while considering to entrust them with more prerogatives. Such a paradox highlights the intellectual dynamic at stake on the eminent role of money in our society and shows us, unfortunately, that its positioning to support the ecological transition has not yet been completely determined.

Milien Dhorne, Research fellow « Ex-ante evaluation of a reform of public policies to support the energy transition ».

[1] Alain Grandjean and Nicolas Dufrêne, « Une monnaie écologique », Edition Odile Jacob, 2020.