Draft Policy - Sound Money

Allen Schultz

April 05, 2022

Share:

One of the key threats to Alberta’s fiscal well-being is the threat of a global economic crisis. If Alberta leadership does not anticipate global macro-economic threats for Albertans, then it will not have the tools to mitigate these threats should they occur.

Alberta’s financial well-being is highly dependent on the Federal government to react to a world global crisis.  If Alberta is to invest natural resource revenue in a sovereign fund, the wealth needs to be preserved and not be devalued through inflation or impacts as a result of a global currency crisis.  An enabled ATB with the appropriate financial tools in place would be more agile to deal with a global crisis and have the best interest in preserving the wealth of Alberta.  There is a lead time to develop the financial infrastructure and by having mitigation in place will demonstrate that Alberta can anticipate potential global black swan events.

 

Category: 

Digital Currency

 

Need/Want Directive:

Whereas Alberta should have the financial tools to mitigate the impacts of a global economic crisis.

 

Need/Want Rationale:

  • There is a risk that a foreign sovereign debt crisis could affect world fiat systems impacting Alberta’s purchasing power and accumulated wealth.
  • This is supported by the following points:
    • China’s public debt-GDP ratio exceeds 300%[1]
    • Japan’s national debt-to-GDP ratio is 234%[2]
    • The US national debt-to-GDP ratio is forecast to approach 137%[3].
    • Canada’s national debt-to-GDP ratio for the next 4 years is forecasted to be over 100%[4].
    • During Greece’s financial crisis, the debt-to-GDP ratio was between 127% and 179%[5].
    • The US reserves relative to GDP is less than 1%[6] making it harder to defend the currency in fiat crisis.
    • Expected interest rate increases to combat inflation is expected to impact both foreign and domestic fiscal sustainability thus leading to a sovereign debt crisis where the purchasing power of the current fiat currency is affected.
  • If foreign or domestic governments do not act to combat inflation in order to maintain fiscal sustainability, inflation would diminish the purchasing power of the current fiat currency.

High debt and persistent high inflation are the top North American high risks where the risk trends are currently remaining unchanged[7].


How Directive:

Be It Resolved that:

  • Alberta Party will empower the ATB to issue a digital currency (CBDC[8]) with the following mandate:
    • Digital currency is backed by assets:
      • Allocated Precious Metals
      • Canadian Dollars
      • Provincial Bonds
      • Foreign exchange
    • Monitor and set currency supply based on economic conditions
    • ATB becomes a buyer of last resort for the issued currency.
  • Alberta Party will endeavour to retire provincial debt with income derived from natural resources.
  • Alberta Party will endeavour to invest income derived from natural resources into CBDC deposits (sovereign fund) in order to:
    • Provide a source of lending to commercial banks for Alberta projects.
    • Interest gained will become a source of revenue in the future.
    • Improve the liquidity of the CBDC.

 

How Rational:

  • Alberta will require a financial instrument that best preserves the wealth of revenue derived from natural resources.
  • A CBDC derived by Alberta would be backed by present and future natural resource revenue.
  • Natural resource commodities represent a hedge against persistent high inflation.  A CBDC that is backed by a resource commodity producing province would also represent the same hedge, and thus a become a wealth preservation financial instrument.
  • A forecasted declining energy revenue due to climate change initiatives would be mitigated by revenue obtained from interest gained in a sovereign fund.

 

 

[1] https://warontherocks.com/2021/12/could-chinas-massive-public-debt-torpedo-the-global-economy/

[2] https://worldpopulationreview.com/countries/countries-by-national-debt

[3] https://tradingeconomics.com/united-states/government-debt-to-gdp#:~:text=Government%20Debt%20to%20GDP%20in%20the%20United%20States%20is%20expected,macro%20models%20and%20analysts%20expectations.

[4] https://www.fitchratings.com/research/sovereigns/canadas-government-debt-to-stay-elevated-under-renewed-liberal-government-24-09-2021#:~:text=Canada's%20(AA%2F%2BStable)%20consolidated,among%20'AA'%20category%20sovereigns.&text=Excluding%20unlegislated%20campaign%20proposals%2C%20Fitch,2022%20and%203.3%25%20in%202023.

[5] https://ec.europa.eu/eurostat/tgm/refreshTableAction.do?tab=table&plugin=1&pcode=teina225&language=en

[6] https://www.ceicdata.com/en/indicator/united-states/foreign-exchange-reserves--of-gdp

[7] https://www.spglobal.com/_assets/documents/ratings/research/100772320.pdf

[8] https://www.garp.org/risk-intelligence/technology/digital-currencies-risks-and-opportunities