Gold and cryptocurrency mining have sustainability issues
The election of President Trump caused a sudden surge in cryptocurrency stocks given his willingness to experiment with alternative monetary policy, including the gold standard. Cryptocurrency is often confused with currencies or currencies like the dollar, but it actually has more in common with reserve currency like gold. Cryptocurrencies are limited by the energy and processing power of computing systems, just as gold is limited by the physical ability to mine and refine the material. So there are some key similarities but also fundamental differences between owning gold versus a currency like Bitcoin as a reserve standard. Currently, the only country that makes Bitcoin as a currency exchange legal tender is El Salvador. However, tThe International Monetary Fund recently made some erosion of Bitcoin-friendly laws in the country a condition for a $1.4 billion loan.
Amidst all the ambition and anxiety about cryptocurrencies in the Age of Trump, it may be worth revisiting the key features of the gold standard from a sustainability perspective. Since “bitcoin mining” requires huge amounts of energy while Gold mining is particularly polluting One may wonder how there could be any positive outcome of these coins. However, there are some key features of how these coins limit their resource consumption potential that need to be considered.
The rise of the gold standard can be traced back to the work of a scientist no less prominent than Sir Isaac Newton, who also had the distinction of serving as “Master” of the Royal Mint and was also fascinated by the the alchemist’s desire to turn lead into gold. Gold’s elemental quality as a rare and durable primary resource may have played a role in Newton’s defense of the gold standard, particularly when compared to the most aggressive competing metal – silver. The popularity of silver as a currency was largely due to the abundant deposits of the metal discovered in South America by the Spanish, especially in the mines of Potosi (in present-day Bolivia) which continues to be an area of ecologically dubious mineral extraction.
Famed Klondike Gold Rush chronicler Jack London admitted in his back-of-the-envelope cost-benefit analysis that miners had probably invested over $220 million to build infrastructure and maintain themselves in order to mine about $22 million in gold. . . However, for him, this calculation in the early twentieth century still weighed in favor of the value of the yellow metal. He further noted that this monumental effort was still of “inestimable benefit to the country of the Yukon,” because “natural obstacles will be overcome or overcome, primitive methods will be abandoned, and the hardships of toil and travel will be reduced to the minimum possible.”
Gold had almost universal value, but there were a few rare exceptions to the rule. In communities with extremely scarce resources, such as the tribes of the Sahara desert, the mineral product of choice was not an inert metal such as gold, but a compound formed from one of the most active metals on the periodic table – sodium. Peter Bernstein describes the comparison between gold and salt in the eyes of the Saharan tribes: “What must these poor diggers have thought of the funny people from the northern country who exchanged priceless salt for things whose only role was to give people pride and pleasure letting them see his brilliance.”
After Newton’s earlier interest in gold, there was a period of worldwide uncertainty until vast gold reserves were discovered in South Africa towards the end of the nineteenth century. The United States established the gold standard during a similar period of gold obsession. From 1834 onwards, gold was considered along with silver as the standard reserve metal in monetary policy with a fixed gold price set at $20.67 per ounce – which remained in effect until 1933. During this period, there was a worldwide resurgence of gold primacy, particularly towards the end of the nineteenth century due to the worldwide gold rushes. These rushes fueled phenomenal growth in various industrial sectors and paved the way for growth in many other sectors of the economy.
Arguments against the gold standard are based on how it limits the range of policy tools that address extenuating circumstances, such as the needs of a wartime economy. After World War II, the Bretton Woods agreement, which created the World Bank and related financial institutions, recognized the prominence of gold by maintaining a reserve monetary system, albeit with a floating gold price. After the Vietnam War, President Nixon completely withdrew from the international gold exchange standard. The US dollar itself became credible enough in the eyes of the international community to break free from the shackles of gold. Yet these shackles are precisely what many today’s proponents of the gold standard find so compelling.
The gold standard has the potential to instill discipline in monetary policy and can prevent governments from needlessly printing money and causing inflation. The standard can also prevent governments from overspending and running huge deficits – hence its current popularity with many in the Tea Party and MAGA movements in the United States. From an ecological point of view, the gold standard has the attraction of linking economic growth to the limitations of natural resources. However, the environmental impacts of gold mining are so severe that any support for reviving the gold standard is summarily dismissed by many activists. For example, every ounce of gold produces 30 tons of waste, and the The US EPA estimates cleanup costs for existing mines at about $54 billion. The main argument for gold mining is related to the estimated 15 to 20 million gold miner livelihoods and the large tax revenues brings to many poor countries where it is mined.
Given gold’s durability and ease of recycling, the gold standard can in principle be maintained without having to mine more gold. Furthermore, if gold is used as a reserve by itself, the main issue of consequence is property rights over the gold. If there was an international consensus on the world’s gold reserves that still exist, then the trade and ownership of such reserves could also be addressed through a system of international treaties regulating the ownership of gold reserves, rather than through physical mining of the metal. For example, if the total world gold reserves could be centrally certified and shares issued to purchase these reserves, the same purpose could be served as gold storage in a vault. In other words, a nation’s gold reserves could remain “stored” in their natural underground state, rather than being mined, refined, and deposited in a Fort Knox-like vault.
Some discount factor could be added to account for the accessibility of some deposits over others, and countries that have gold on their land could get preferential rights to the shares similar to how company founders or employees they preferred stock options. While this would be environmentally preferable to the current mining and storage system, environmental economists would be right to ask: why not just anchor the currency to some other measure of planetary carrying capacity that could be considered in the same way? Perhaps a ‘leave the underground’ approach to gold could be a first step on the road to considering more ecologically favorable means of storing and measuring ‘wealth’.
The gold standard has a checkered history in terms of its overall effectiveness in economic growth, but there is no question that we need to instill some discipline in our financial institutions. Historically, gold mining and the gold standard have contributed to great ecological destruction. However, they also contributed to the great business and economic growth of the modern era. The gold standard inadvertently recognized the connection between monetary power and natural resource stocks, which are at the core of many modern environmental ideologies. While the standard’s early proponents did not envision this connection, the “discipline” they sought was the result of the physical limits of gold mining and the underlying finite reserves of gold.
Current debates about reviving the gold standard or indeed even linking cryptocurrency to gold it should focus on this underlying presumption of the standard. Indeed, such an approach may also help bridge the perceived tension between environmentalists and conservative politicians and economists. The message remains that the prominence of a gold standard for economic discipline is due not only to the nature of gold itself, but is a product of the fact that gold is a relatively scarce natural resource with the persistent allure of durability. Rethinking a hybrid form of the gold standard paradigm could offer a possible solution to the challenge of public and private sector overconsumption in a capitalist context.
