Money performs three functions: it is used as a means of exchange, a store of value, and a unit of account. Toco can be used to perform transactions (e.g. buying goods or services), accumulate savings for future transactions, or to measure carbon mitigation outcomes.
Toco is known as representative money. This is any type of money that represents a fixed quantity of a commodity. The most well-known of these was the gold standard, under which the world operated until 1971, where the money supply was convertible into a fixed amount of gold. Unlike fiat money (the money we use today) which does not have intrinsic value, commodity-representative money, has its valued derived from the assets it represents, for example tradable commodities such as gold, or in our case, carbon mitigation assets.
Our currency is based on carbon mitigation assets (CMAs), i.e. any tradable certificates representing independently verified carbon emission reductions. One toco represents a one-tonne reduction of atmospheric carbon dioxide equivalent. One of the key roles the Carbon Reserve performs on behalf of toco users is to maintain this convertibility by actively managing the quality and quantity of the CMAs on its balance sheet.
Simplistically, the amount of money an economy needs to have in circulation is equal to the sum of all the transactions taking place and the savings held. As an economy expands - i.e. people transact and/or save more - the money supply should increase to prevent adverse economic effects. In the case of fiat money, the issuing government can just print more, but this comes with inflationary risks if the right balance between supply and demand is not achieved. In the case of commodity-representative money, more money can only be minted if the convertibility to the underlying commodity can be maintained. Therefore, to increase the money supply, the amount of the commodity held in reserve must also be increased. In this manner, the expansion of the toco economy creates demand for CMAs, which in turn promotes decarbonisation of the atmosphere.
Under the gold standard, any growth in the economy translated directly to an increased demand for gold. This incentivised more investment in gold mines and expanded the gold mining industry. Similarly, the Carbon Reserve aims to expand the global carbon market through the widespread adoption of the toco currency. The more people and businesses that adopt toco for their daily spending and savings, the more the demand for toco grows. To increase the supply of tocos in the market to meet this demand, the Carbon Reserve has to purchase more carbon assets to hold as reserves. The increased demand for toco therefore incentivises and accelerates greater investment in carbon mitigation projects and technologies.
Money has been around for roughly 5000 years, and before that, it is believed a form of bartering was used. Over this time money evolved to best meet the needs of different populations so they are able to give objects value (price), store their wealth, and exchange goods and services.
Current economies use fiat money. Its value is linked to the supply and demand of money. However before the 1970s the Gold Standard was used. This was a form of commodity-backed money that meant that the money supply was convertible into a fixed amount of gold.
A growing economy is what every country aims for. Simplistically this is when people want to transact and/or save more. When this happens the money supply will need to increase to keep up with the demand. In the case of fiat money this is easily accomplished (it can be printed by government) but comes with inflationary risks if the right supply demand in not achieved. In the case of commodity-backed money this can only be done if the claim on the underlying commodity that can be redeemed is maintained. This implies that the amount of the commodity (e.g. gold) must also be increased.
The currency (toco) issued by the Carbon Reserve is a type of commodity-backed money, similar to the gold standard. In our case the commodity we use is carbon mitigation assets, i.e. any tradable certificates that represent independently verified carbon emission reductions achieved. toco is backed by carbon mitigation assets such that it is convertible into one ton reduction of carbon dioxide equivalent achieved. One of the key roles that the Carbon Reserve performs on behalf of toco users is to maintain this convertibility by actively managing the quality and quantity of the carbon mitigation assets on its balance sheet.
When economies grow under the fiat model, it leads to an expansion of the financial industry as more debt can be created and sold. Under the gold standard when the demand for money increased it lead to an increase in the demand for gold. This incentivized more investment in gold mines and expanded the gold mining industry.
Similarly, the Carbon Reserve aims to expand the carbon market with the issue of its toco currency. The more people and business choose to transact and save in toco the greater the demand for increasing the money supply. Since toco is backed by assets that represent atmospheric carbon reduction, to increase the supply, the carbon reserve needs to purchase more carbon assets from the market to hold as reserves. This increased demand by Carbon Reserve will similarly incentivise more investment in carbon mitigation projects and expanded the carbon markets.
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