Bridging the Gap: The Role of Green Quantitative Easing and Central Bank Digital Currencies in Managing, Funding and Hedging Our Common Future

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Abstract

The article is a response to the seminal paper of K. Patel et al. published in Cadmus (2025)*, addressing how to finance UN-SDGs. Beyond traditional measures, like mobilizing private wealth, taxation and taxonomies, the article stresses the relevance of an out of the box approach, using additional conditioned liquidity, issued by Central Bank’s Green Quantitative Easing and Central Bank Digital Currencies (CBDC) and their associated swab lines. This approach will be able to hedge systemic risks, mobilize private capital and fund and manage planetary goods.

1. Mobilizing Private Capital

Ketan Patel et al.’s seminal paper ‘Funding the Sustainable Development Goals is Not a Challenge of Sufficient Capital’ presents a highly novel argument for how to finance the UN SDGs, which goes far beyond the traditional arguments and political statements since the UN SDGs got introduced.¹ The authors first lay out the figures: the funding gap for the SDGs is 14–17 trillion USD annually, and that gap has been widening by 10% in recent years due to inaction and inflation. Only 16% of the goals are on track, while for about a third, things are going backwards. The authors identify globally accumulated private wealth as a major candidate to bridge this gap. Total global wealth amounts to 653 trillion USD, of which 543 trillion USD is held by households and 119 trillion USD by governments.^† The global financial system manages about 433 trillion USD, through commercial banks (160 trillion USD), asset managers (119 trillion USD), pension funds (67 trillion USD), insurance companies (41 trillion USD), central banks (44 trillion USD), SWFs (13 trillion USD), family offices (11 trillion USD), hedge funds (5 trillion USD), REITs (1.2 trillion USD) and other institutions.‡ This system acts as an intermediary between private households, governments and companies (179 trillion USD) with a legally binding mandate provided for the latter two by their citizens and clients respectively. Global GDP measured in current prices is about 110 trillion USD.² Though about 50% of private and public wealth is deployed or fixed (residential assets, property, plant and equipment, IP), it still seems to be a manageable task to bridge the annual funding shortfall of 14-17 trillion USD for the SDGs. The authors further demonstrate that economic growth alone will not be enough in 145 out of the 193 countries worldwide to meet the UN SDGs. In 46 LICs, representing about 1.3% of global GDP and almost one billion people, an assumed 4% growth rate would be required to bridge the gap by 2060. Conventional funding (ODA—223 billion USD; MDBs, including grants and concessional loans—100 billion USD) and global initiatives like the Global Environment Facility (GEF) and Green Climate Fund (GCF), endowed with 10 billion USD, would need to be scaled up 30–40 times (!) to bridge the gap. The authors further conclude that even measured against the 433 trillion USD of global financial assets or the 272 trillion USD of liquid assets held by households, a tenfold (!) increase in FDI (currently 867 billion USD) would be required.

The main argument is that we need to unlock private capital through domestic savings, adjusted accounting (ESG directives) for traditional investments, philanthropy (1.5 trillion USD), impact investment (1 trillion USD) and blended finance (1.5–5 trillion USD) using additional credit guarantees in order to bridge the gap. These figures are in line with the general consensus of the last ten years, and are approved by intergovernmental (WB, IMF) and governmental (central banks, treasuries) bodies as well as think tanks and academic institutions.

The paradox is that although private capital accounts and willingness to invest are still rising, so too are systemic risks and the impacts of negative externalities and asymmetric shocks. Sticking our heads in the sand and ignoring it will end up very expensive for all of us.

2. Preliminaries to my Complementary Argument

There are enough private liquid assets available to theoretically fund the gap and that the vast majority (about 80%) of the necessary liquidity should come from the private sector.^§ The economic transformation we are currently going through, which requires us to shift from an extractive, linear and unhealthy way of doing business with cumulative spillovers towards a more regenerative, circular, steady-state, balanced economy focused on the ‘good life’, is primarily a matter for companies and private households and their associated wealth. However, private capital is chronically risk-averse, short-termism and pro-cyclical by its very nature and it remains unqualified, meaning the only KPI that counts is ROI, regardless of whether the capital is invested in hospitals, renewable energy, dams and universities or tanks, bullets and fossil fuel plants. In addition, private capital is overall (relatively) insensitive to systemic risks and negative externalities, failing to adequately recognize and account for them.

Most, if not all, modern economic activities within an integrated financial system are characterized by an asymmetry between the rate of return on capital (r) and the general growth rate of the real economy (g). This asymmetry can be expressed as r > g. It has great explanatory power for understanding volatility indexes, real estate prices, inequality spreads, resource extraction, cash flows, liquidity preferences, consumer behaviors and risk adjustments. Operating within a closed planetary economy, which is one of the major characteristics of the Anthropocene era, adds further complexity to this asymmetry.³ This can be expressed as r > g – e, where e refers collectively to the opportunity costs of not investing in planetary commons, the additional costs of mobilizing private capital and the rising expenditures on collectively triggered negative externalities, including climate-related heatwaves, harvest defaults and forced migration. If we further assume that systemic risks and negative collective externalities are rising exponentially and, on top of that, our planetary commons (which are the precondition of all private market activity) are chronically underfunded, then the situation is only going to get worse, not better. The lack of hedging for systemic risks and their associated future impacts that we have already collectively triggered, including future pandemics, climate-related costs, biodiversity loss and social negative externalities (forced displacement, an increasing income and wealth gap, political polarization, crime and vandalism), will come at a cost we all have to bear together. Private capital will continue to be uninvested and an increasing number of sectors and regions will become uninsurable. In this uninsurable world, premiums will no longer be manageable by private households or governments, and taxpayers’ money will sooner or later become uninvestable. In consequence, applications for traditional credit lines, loans and mortgages will increasingly be rejected, as will be traditional hedging instruments (derivatives, swaps, etc.). Since e is not a cyclical variable but an inherently systemic phenomenon, it has a built-in positive reinforcement mechanism that sooner rather than later will translate into exponential costs. If we go past certain irreversible tipping points, we will find ourselves locked in for over 100 years. It will then no longer be possible for systemic risks to be transferred to insurance companies or absorbed by taxpayers, and adaptive measures will result in massive losses of welfare and wellbeing for billions of people over the course of decades. That will lead to a massive reduction in long-term infrastructure investment, an increase in financial volatility and a breakdown in our way of doing business: we will end up with fewer public goods and less private investment, yet the biophysical challenges will remain unsolved. A situation nobody ever wanted. The bottom line is that the allocative power of a free, competitive market system, where price signals provide an indispensable and powerful tool to steer, manage and redirect resources, services and money, will cease to function. I would even go so far as to say that capitalism as we know it, characterized by private ownership and free contracting, the allocation of goods and services by price signals and a functioning international banking system and currency markets, is at risk of fatally undermining itself. That would mean volatility, uncertainty and speculation replacing reliability, trust and foresightedness. We would then end up in a world with excess private capital on the one side and destroyed planetary commons, unmanaged biophysical risks and crime, conflicts and wars on the other. We are at the start of a process that will reduce much of the world to a ‘no man’s land’ or ‘wasteland’. All these points refute K. Patel et al.’s overall argument that there is enough private capital to bridge the gap.

3. The Devil is in the Detail

The traditional approach to financing our common future is based around five main measures: taxation schemes (1), taxonomies (2), privatization (3), additional debts and loans (4) and philanthropy (5). None of these five measures are entirely without merit; each has its intrinsic value and can make a relevant contribution to funding the gap. But given the time pressure we are under to achieve the necessary transformation within 10–15 years, they will be too low in volume, too slow in speed and insufficiently targeted.⁴ Below, I give some partial arguments for why this is the case.

1. Taxation: International taxation schemes and initiatives, while well intended (‘tax the rich’, carbon tax, Tobin tax, etc.), require a global consensus within a global governance system that does not exist. Instead, we are operating in a multipolar world, a ‘web without a weaver’, where different national interests and path dependencies determine international collaboration.⁵ The idea of reaching a global consensus on how to tax assets remains an academic pipe dream. To the best of my knowledge, most if not all taxation schemes fall sooner than later on the right-hand side of the Laffer curve, which defeats their purpose.
2. Taxonomies: All major ESG initiatives to adjust accounting systems incur additional regulatory costs and often amount to mere greenwashing or window dressing, with little to no measurable systemic impact. One strong argument against relying on risk-adjusted accounting as a standalone solution to internalize negative externalities is that the private sector cannot cope with the collective negative externalities that we as a global community (consumers, producers, investors and public bodies) have collectively triggered and built up for centuries. Those collective externalities demand a collective and not a private response (see below).
3. Privatization: About two-thirds of the UN SDGs relate to planetary commons, not private goods. In the foreseeable future, I do not anticipate a majority of the world population agreeing to further privatize our common future. Increasing resource efficiency (new technologies and regulatory efforts) and replacement investment are undoubtably key measures, but they do not take us ‘outside the box’: that is to say, they do not change the rules of the game in the financial sector, but merely optimize them. We should bear in mind that 85–90% of assets are already private. Should we really be privatizing even more of them: the mangroves, the Amazon, our healthcare, our educational system?
4. Debts and loans: 80% of public debts are owned by private companies. Any time we increase the public debt load, principals and interest payments are transferred to the 1.5% (120 million people, mainly baby boomers), who have specific claims (mainly through pension funds and insurance companies). This will further increase the wealth gap. In addition, three billion people live in countries that spend more on interest payments than on health or education. Debt restructuring is a necessary though painful exercise, but by itself it will not change the playing field and allow us to build a common future together.
5. Philanthropy: The 1.5 trillion USD spent on desirable projects is to the benefit of humankind, and we should encourage more rich people to engage in philanthropy. But it is delusional to pretend we can rely in principle on a gift economy, where the wealthiest people first damage the planet and only afterwards seek to do good, for the ‘giant leap’ or ‘grand transformation’ that is now needed. We must change the architecture of the international monetary system (IMS) to enable new, ‘out-of-the-box’ and ‘best-next-step’ solutions that take into account the time pressure and rising systemic risks and costs, and provide financial incentives that can overcome the flaws of short-termism, risk-averse and pro-cyclical private capital and instead crowd in private investment.

In order to mobilize the 14-17 trillion USD needed annually to bridge the gap; we need additional, conditioned liquidity in the form of a monetary supply aggregate distinct from the traditional measures (1–5) described above. Specifically, it should be conditioned to mobilize and hedge private capital (of which a plentiful supply is available), provide the additional funding for planetary commons (where no market solutions are in sight) and manage the collective negative externalities and systemic risks we are all responsible for. In fact, this is happening already.^¶

4. My Complementary Argument in More Detail

Technically speaking, we are talking about green quantitative easing (gQE): central banks generate additional, conditioned liquidity that can only be used to hedge, fund and manage negative externalities and underfunded commons and to de-risk private capital.⁶ I refer to this as M^cola, conditioned liquidity assistance, which takes the form of an additional, pre-distributive monetary supply aggregate. This additional liquidity would run through central bank digital currencies (CBDCs) and their associated swap lines (CBCSs) and be underpinned by a smart contract to enable and track conditioned funding and hedging.^** It could facilitate and complement taxation schemes and green taxonomies, and provide cross-over financial engineering tools to hedge the gap between systemic threats, planetary commons and private assets.⁷ This monetary supply aggregate could further be used to implement structural changes (institutional capacity-building for audits, tax offices, an independent press or cultural scene, etc.) or to provide public funding for high-risk investments with a potential high social return (education, healthcare, nature reserves). It would extend the balance sheets of major central banks by about 5–7 trillion USD (2024: 44 trillion USD). In order to sterilize the balance sheets of donors and recipients, the monetary facility would need to be a zero-interest-rate coupon perpetual facility (0-iCPF).^†† And eventually, the M^cola would use different channels to meet the requirements of the real economy (see below). In accounting terms, the 0-iCPF is a joint liability and asset of a central bank and another public entity (e.g. an MDB). This is not the end of the world, just the opposite. It is the key to financing our future. The graph below illustrates the link between the consumer price index (CPI), rising systemic risks and the relevance of an additional monetary supply aggregate.

Unmanaged systemic risks are associated with increasing CPI ^BAU costs; represents the expected costs under a business-as-usual scenario, where increasingly many sectors and regions will become uninsurable. In a business-under-transformation (BUT) scenario with an additional monetary supply aggregate in place, the expected costs might still rise to start with (t₁) but then decline over time (t₂) as negative externalities and systemic risks are managed (CPI ^BUT). ξCPI represents the relative benefit of having that monetary aggregate in place.

5. The Complementary Argument in Numbers

Assuming that the funding gap is 16 trillion USD, about 12.5 trillion USD would need to come from private capital and about 3.5 trillion USD from public entities. Both private and public entities are exposed to increasing asymmetric systemic risks with built-in uncertainty, which means they cannot be (fully) quantified, though we can identify and characterize them.⁸ In order to mobilize private capital to do 80% of the job, systemic public guarantees are required, which would cover the systemic risks (not the project risks!) and mobilize the trillions of dollars needed. I assume a call-in default rate of 1:30.^‡‡ The assets would comprise derivatives, asset-backed securities (ABSs), a covered first-loss tranche, a public–private equity share, an integrated public security umbrella or a combination of all five. I further assume a 10% annual replacement rate for investments (out of the global GDP of 110 trillion USD). This accelerated but conditioned replacement rate would have to be (partly) compensated for tax losses due to conditioned (direct and indirect) tax breaks and ESG regulatory requirements. I assume another 1.5 trillion USD for these compensation strategies. On the other side, funding and managing planetary commons, in line with the SDGs, would require about 3.5 trillion USD. This additional liquidity would be conditioned to either recapitalize IFIs (WB, MDBs, etc.) so as to mobilize domestic savings and further de-risk private capital flows, or to actively purchase green treasury bonds (with a bifurcated interest rate differentiating between brown and green investments, providing concessional loans and grants, being utilized to restructure debts on a national level or frontload the WHO so it can tackle the next pandemics). This would be equivalent to about 6 trillion USD of gQE annually. The additional liquidity would operate in digital form, using smart contracts, CBDCs and CBCS lines.⁹ This monetary design would generate multiple positive green-second round effects for the real economy, with a multiplier < 1.¹⁰ The following table breaks down the numbers for a M^cola.

To note: In order to unleash the 16 trillion USD gap, we need to start with an additional, conditioned liquidity of 6 trillion USD annually in order to mobilize and hedge private capital and to fund and manage negative externalities and plenty commons.^§§ A large chunk of this nominal figure are state securities, that have a call-in rate of 1:30 empirically. So, the factual number will be much smaller. However, this proposed new additional and conditioned monetary supply aggregate would bring about a next-to-zero-cost world, as each capital gain on the one side (r*) would match the income, profits and shares on the other (g*), because e and M^cola will tend to zero in the long run, expressed as r* = g*. We would then end up with extended balance sheets at all major central banks, with new central bank digital currencies and their associated swap lines, backed by blockchain technology, inducing multiple positive green-second round effects as desired, and the challenges posed by the transformation would be met. We would then have an economy with reduced instability, systemic risks, volatility and income inequality and higher wealth and wellbeing. Some scholars characterize this new equilibrium as Pareto-superior, or as an ecological, regenerative, steady-state or circular economy—referred to in Swedish as a ‘lagom’ economy: a ‘just enough’ economy that reconciles individual freedom and common goods.¹¹

6. Conclusion: The Argument is Simple, but Non-trivial

Beyond traditional measures: Most if not all traditional measures to fund our common future—taxonomies, new financial and non-financial directives, voluntary commitments, nudging, taxation schemes, ODA programmes—have been debunked. One reason for this is that they remain ‘inside the box’, trying to optimize the existing rules of the game instead of reaching out beyond them. Rather than optimizing redistributive measures only, I am advocating ‘out-of-the-box’‚ ‘best-next-step’ pre-distributive measures that go beyond conventional approaches. One good candidate is an additional, conditioned monetary supply aggregate (M^cola).¹²

The ‘technological dividend’: With the roll-out of new technologies (AI, synthetic biology, robotics, quantum computing), we can expect less M^cola will be needed to fund our transformation. But the argument that technology alone can fix the problems and deliver the transition overlooks the necessity of upgrading our IMS. If we let finance continue to drive our planetary commons, rely solely on taxation and taxonomies to internalize our negative externalities and wait until the systemic risk profile matches the expected returns for private capital (which will never happen), we will remain trapped in the wrong narrative. Instead, sustainability should drive finance.¹³

Systemic risk cascades: At present, we can identify, qualify and describe multiple threats and risks, and we can even quantify the probability of isolated risks,but we do not have the computing power and data to quantify the toxic cascades, inter-sectorial effects, overshoots, butterfly effects and black swan scenarios associated with these threats and risks.¹⁴ A fundamental uncertainty remains. If we admit that all these systemic risks will sooner or later translate into costs, leaving us more vulnerable and less resilient, and further admit that as we move beyond tipping points and planetary boundaries a money crunch is a pretty likely scenario that will make things extremely expensive, we will realize that we need to start reaching out for alternatives.

Reconciling economy and ecology: Reconciling a linear and extractive economy with our ecosystems through efficiency gains only is an oxymoron. There is ample evidence, that any increase in efficiency, due to innovation, research, development and new technologies will lead to numerous rebound effects, that defeat the purpose. A circular economy only, where ownership is replaced by service, where new modular product design, repair and recycle measures replace extraction and waste, can overcome this oxymoron. And this requires an ‘out of the box‘ approach and a new institutional design in hedging and funding that transition.

The four Ts—technology, transfer payments, taxonomies and taxation—all remain ‘inside the box’.

A secondary preventive approach in finance: All the monetary tools described above will only be effective and efficient for as long as the environment remains relatively intact and nation states remain functional; there is a global labor market we can tap into and we are still able to access natural resources and new technologies that increase substitutability and resource efficiency. We could then adopt a secondary preventive approach (a well-known concept in public health).¹⁵ We would have to acknowledge that we have caused the planetary damage already and need to wisely manage, fund and hedge the future costs we have already incurred. To paraphrase the philosopher Leibniz, M^cola would bring us to the ‘cheapest of all possible worlds’.¹⁶ This is the Keynes 2.0 moment we are in right now, in which Keynes’s seminal economic theories are being adapted to the requirements of the 21^st century.¹⁷

Notes

1. Ketan Patel et al., “Funding the Sustainable Development Goals is Not a Challenge of Sufficient Capital,” Cadmus Journal 5, no. 4 (2025), https://cadmusjournal.org/article/volume-5-issue-4/funding-the-sdgs-is-n.... The argument is further explained in details in Force for Good, Capital as a Force for Good, The World Investment Plan, Investing in the Global Transition, 2025, https://forcegood.org/frontend/img/cf4g-report-2025/cf4g-report-2025.pdf; United Nations, The Sustainable Development Goals Report 2024 (New York: United Nations, 2024), https://unstats.un.org/sdgs/report/2024/The-Sustainable-Development-Goals-Report-2024.pdf; United Nations, “Sevilla Commitment,” June 30, 2025, https://www.un.org/sustainabledevelopment/blog/2025/06/ffd4-opening-renewed-framework-2/.
2. All figures according to Force for Good, Capital as a Force for Good: Shifting the Global Order through the Mass Mobilization of Solutions (Force for Good, 2024), https://www.forcegood.org/frontend/img/CF4Greport-2024/Capital%20as%20a%20Force%20for%20Good,%20Report,%202024.pdf.
3. Paul J. Crutzen, “Geology of Mankind,” Nature 415 (2002): 23, https://doi.org/10.1038/415023a.
4. Stefan Brunnhuber, The Economics of Transformation: A General Theory on Financing Our Planetary Commons, on Money and a Sustainable Development for the 21^st Century (Berlin: De Gruyter, 2025).
5. Thomas Kalinowski, Why International Cooperation Is Failing (Oxford: Oxford University Press, 2019).
6. Raphael Abiry et al., Climate Change Mitigation: How Effective Is Green Quantitative Easing?, CEPR Discussion Paper No. DP17324 (May 2022).
7. Marianna Mazzucato & Vieira de Sá, R., “Mind the mission, not the gap: Rethinking blended finance for public purpose” (Institute for Innovation and Public Purpose Working Paper 2025-09, 2025).
8. Huan Liu and Ortwin Renn, “Polycrisis and Systemic Risk: Assessment, Governance, and Communication,” International Journal of Disaster Risk Science 16 (2025), https://doi.org/10.1007/s13753-025-00636-3.
9. Stefan Brunnhuber, “A mechanism that can change the world,” TED Talk, August 2017, https://www.ted.com/talks/stefan_brunnhuber_a_mechanism_that_can_change_the_world ; Stefan Brunnhuber, “UN -talk, May 2018: “Blockchain - Financing the Future - Sustainability – SDG,” UN-Talk, May 2018, https://www.youtube.com/watch?v=7zc12ZPbMLE.
10. The conversion rate (annually) necessary to transition the entire global value chain from an extractive fossil-driven economic model to a cyclical, regenerative one is far greater than the general global growth trajectory of 3–4% annually. This is due to the fact that over 80% of the entire global value chain still depends on fossil fuels. Each time we build a wind turbine or create a nature reserve, almost all the wages it generates are still linked to that fossil-dependent economy. Assuming that we want to achieve net zero by 2050, the replacement rate would need to exceed 7% of the entire global value chain. This is one of the main reasons we need to reform the entire IMS. For the calculation of these figures, see Stefan Brunnhuber, Financing for Development: Towards a New, Green, Bretton Woods (London: Routledge, 2025).
11. David Colander, Richard Holt, and Barkley Rosser, “The Changing Face of Mainstream Economics,” Review of Political Economy 16 (2004): 485–99, https://doi.org/10.1080/0953825042000256702; Sam Buckton et al., “Reform or Transform? A Spectrum of Stances towards the Economic Status Quo within ‘New Economics’ Discourses,” Global Social Challenges Journal 3 (2024): 382–481, https://doi.org/10.1332/27523349Y2024D000000025.
12. Stefan Brunnhuber, Financing for Development: Towards a New, Green, Bretton Woods (London: Routledge, 2025). Besides a new role for regulators, this would also entail institutional measures, such as a bifurcation of interest rates, a new public clearing house for derivatives, reforms to the investment court system, the Supply Chain Act and the rating agencies and a reset of the voting powers at international monetary institutions, including the World Bank, IMF and WTO to build a UN 2.0.
13. Stefan Brunnhuber, The Economics of Transformation - A General Theory on Financing our planetary commons, on money and a sustainable development for the 21^st century (Berlin: De Gruyter, 2025).
14. World Academy of Art and Science, “WAAS EXTRA Hub-Initiative: EXTRA InfoHub,” accessed November 24, 2025, https://worldacademy.org/extra-directory/.
15. Melanie Bertram et al., “Investing in Non-communicable Diseases: An Estimation of the Return on Investment for Prevention and Treatment Services,” Lancet 391 (2018), https://doi.org/10.1016/S0140-6736(18)30665-2; Gareth Iacobucci, “More Targeted Spending on Prevention Could Double Return on Investment, Say Analysts,” BMJ 387 (2024), https://doi.org/10.1136/bmj.q2206.
16. Gottfried Wilhelm Leibniz, Essais de theodicée sur la bonté de Dieu, la liberté de l’homme, et l’origine du mal (Amsterdam: David Mortier, 1710).
17. Stefan Brunnhuber, The Economics of Transformation - A General Theory on Financing our planetary commons, on money and a sustainable development for the 21^st century (Berlin: De Gruyter, 2025)