Chapter 8

Energy Backed Money Frequently Asked Questions

Would I carry around a battery to make purchases?

No, the proposal here is for a representative money and not commodity money. From a transaction perspective energy backed money would function exactly like our current fiat money and also like our previous gold backed money. The only difference is that a dollar might have some new wording on it like "5 kilowatt-hours guaranteed to the bearer of this note".

How do you store the energy to back all the money?

The energy would not be stored in vaults like gold. It is actually incredibly costly and impractical to store large amounts of energy. Instead of amassing stored energy, the focus would be on amassing the ability for an economy to efficiently produce the energy it needs.

Since gold can be stored in a vault and electricity can't, wouldn't a gold standard be less subject to abuse?

The fact that gold is stored in a vault does make it more likely that the gold will be around if you should want to convert dollars into gold. However, the weak point in the gold backed money system is not the existence of the gold but rather the government's guarantee to convert dollars into gold. With the gold standard the government has a lot of power to carry on a prolonged charade that everything is fine with the monetary system when in reality things could be way out of control for a long time making it impossible for the government to live up to its promise to convert dollars into gold. From this perspective dollars backed by electricity should be superior because the government's guarantee to back dollars with electricity would be rigorously tested every day by the nearly the entire population with a sizable percentage of the GDP.

Would the government control the production of electricity?

No, the government does not need to control electricity production. The goal of government would be to responsibly manage the money supply so the relationship between the dollar and the costs of electricity naturally fall within the desired range.

Would the price of electricity be fixed?

No. The goal would be to have the free market decide the price of electricity. The goal would be to manage the overall money supply so dollars are never converted into energy at the guaranteed conversion rate.

What if the free market price of electricity became larger than the conversion amount?

This should not happen, but the suggested way to deal with an Energy Backed Money Meltdown is discussed in Chapter 6.

How is a foreign country supposed to convert money into energy over long distances?

Eventually there will probably be superconducting cables between major international economic hubs that transfer large amounts of energy efficiently over very long distances. However, even before this happens countries can still benefit from currencies being backed by something of real value.

Can we really assume we will become more efficient at producing energy in the long term?

Historically we have been able to produce energy more and more efficiently over time. However, as we continue to use our finite resources of oil, coal and natural gas it will become more difficult to find and extract these resources from the ground and, at some point, technology might no longer outpace the growing difficulty required to extract dwindling resources of oil, coal and natural gas.

Fortunately there are other sources of energy such as nuclear, wind and solar. It is interesting to realize that the total world power consumption could be generated by using affordable, existing solar technology and constructing a 620 mile by 620 mile solar farm within the Sahara Desert.[13] The power of the sun, 93 million miles away, provides powerful daily assurances that there is no energy shortage in our world. Over time we will become more efficient at collecting energy from the sun in deserts, oceans, and even outer space.

Won't peak oil and the corresponding high oil prices create problems for an energy backed monetary system?

For those who are not familiar with the concept, peak oil is the theoretical point in time when the yearly world production of oil reaches a maximum. This is not when the world is out of oil but rather it is when the oil remaining in the ground has become so difficult to extract that we can no longer get it out of the ground as fast as we used to. In other words, the point in time when technical advancements in oil drilling can no longer outpace the added difficulties posed by the finite, dwindling oil reserves. At the point of peak oil, it would be logical to assume the price of oil would increase so there can be price equilibrium with the reduced supply of oil and demand for oil.

Unusually high oil prices would significantly impact any monetary system used by the US. Even though the system proposed in Chapter 6 was an electricity backed dollar and electricity in the US does not rely on oil, a spike in oil prices would surely have an impact on the price of other forms of energy like electricity. If I were the one in charge of coming up with the actual numbers to use for the guaranteed conversion rate between dollars and electricity then I would the definitely consider the possibility of a peak oil shock when determining the conversion rate of dollars to electricity.

Will connecting energy to money impact efforts to protect the environment?

All the proposed energy backed money system does is strive to make dollar stable relative to something of intrinsic value, electricity. However, since our primary source of electricity is currently coal, the proposed monetary system is connected in some way to current environmental issues. For example, if the government wanted to implement a policy to limit carbon dioxide emissions they would need to consider how the policy might impact the free market price of electricity because if their policy is too aggressive and results in the price of electricity going above the guaranteed conversion price then the government must confront the economic reality of their policy by raising taxes or reducing spending.

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