When Printing Money Harms the Planet: The Overlooked Link Between Liquidity and Environmental Collapse

Redacción HC
18/02/2024

In the race toward ecological sustainability, most of the focus has been on cleaner energy, smarter consumption, and tighter regulations. But what if a silent driver of environmental degradation has been hiding in plain sight all along—the exponential growth of money itself?

A recent study by economist Stefan Möckel, published in PLOS Sustainability and Transformation in January 2024, challenges conventional green thinking by pointing to an uncomfortable macroeconomic truth: the rapid expansion of global money supplies may be fueling the overuse of natural resources, hindering progress toward an ecologically balanced economy.

The study reframes the sustainability debate by highlighting a critical question: Are the growing global supplies of money (M0, M1, M2...) an overlooked structural obstacle on the road to environmental sustainability?

The Missing Variable in the Sustainability Equation

For decades, environmental economists have focused on improving efficiency, recycling, and limiting emissions. But Möckel’s work argues that these strategies often ignore the core engine of economic expansion: monetary supply growth.

Using data from 1961 to 2016 across major economies like the U.S. and China, Möckel reveals that money supply has expanded dramatically—up to 45 times faster than inflation in some periods. This excess liquidity flows into consumer spending, industrial production, and infrastructure projects, often translating directly into increased extraction of resources and CO₂ emissions.

To reflect this dynamic, the author proposes an expanded production function that includes money creation (MC) alongside traditional inputs like capital, labor, and natural resources. In essence: more money, more economic activity, more resource consumption.

Five Key Findings: The Money–Nature Nexus

Möckel’s analysis points to a strong and consistent correlation between money creation and environmental degradation. The findings are sobering:

1. Disconnection Between Monetary Growth and Inflation

• In both the U.S. and China, money supply growth has far outpaced inflation, meaning vast amounts of new capital are injected into the economy without corresponding price increases—but with significant environmental costs.

2. Liquidity Fuels Both Demand and Resource Exploitation

• Extra money stimulates demand and finances the extraction infrastructure to meet that demand. The result? More consumption, more mining, more emissions.

3. The Efficiency Rebound Trap

• Even if industries become more efficient or rely on recycling, the increase in liquidity drives total demand upward, offsetting any ecological gains—a classic "rebound effect."

4. The 2008 Crisis as a Natural Experiment

• During the global financial crash, credit shrank, and resource exploitation dropped significantly. But once stimulus packages rolled in, both credit and resource use soared again.

5. Proposal for a Monetary Cap

• Möckel suggests a 2% annual cap on money supply growth, aligned with inflation targets and ecological boundaries such as planetary biocapacity and ecological footprint.

A Call to Redesign Monetary Policy for the Planet

If the world is serious about ecological transformation, Möckel argues, central banks and financial regulators must change course.

He proposes:

• Aligning monetary expansion with ecological limits, not just inflation and employment
• Controlling global liquidity growth using indicators like ecological footprint vs. biocapacity
• Redirecting existing liquidity toward sustainable development, rather than funding new emissions-heavy activities

In short, "green growth" financed by ever-expanding money creation may be a dangerous illusion. Sustainability requires not only technical solutions but monetary discipline.

Lessons for Latin America and the Global South

While the study focuses on global trends, its message carries particular weight for Latin American economies, where monetary expansion is often used to finance infrastructure or stimulate growth—sometimes at the expense of forests, rivers, and biodiversity.

In countries like Brazil, Peru, and Colombia, rapid deforestation often correlates with public or private investments funded by credit booms or monetary injections. Möckel’s framework could inform new rules that tie public finance to ecological safeguards.

Imagine: before issuing a new infrastructure bond, a country would need to demonstrate how the project aligns with ecological capacity and resource regeneration rates.

Conclusion: Redefining Prosperity in a Finite World

This study doesn’t just add a footnote to sustainability economics—it calls for a paradigm shift. By integrating money creation into environmental accounting, Möckel opens the door to a more systemic understanding of why decades of well-intended policies have failed to curb planetary overshoot.

As global warming accelerates, biodiversity collapses, and resource use intensifies, the conversation must evolve. Limiting emissions is necessary—but it won’t be sufficient unless we also rein in the financial engines that drive them.

“Creating money without ecological limits is like stoking a fire while trying to put it out,” Möckel warns.

The time has come to put ecology at the heart of monetary policy—and to recognize that in a finite world, endless liquidity may be the most dangerous illusion of all.

Topics of interest

Biodiversity