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2.1 The Physical Energy Consumption of the Traditional Financial System
The traditional financial system plays a significant role in the global economy, facilitating the exchange of goods and services, managing risk, and facilitating investment. However, this system also has significant energy consumption, environmental impacts and carbon emissions associated with it. It is difficult to quantify the exact energy cost of fiat currency, as it depends on various factors such as the type of currency, the methods used for production and distribution, and the infrastructure in place for financial transactions.
The energy consumption of the entire banking system is complex and diverse. It is hard to quantify as an industry that operates on a global scale and the indirect environmental consequences are myriad and extensive. The negative environmental impacts associated with traditional financial systems include; Carbon emissions, Resource consumption, Waste generation, Land use, Pollution, Deforestation, Water scarcity and Habitat destruction.
The components of the fiat system that inflict these negative impacts are as follows:
Physical buildings: The banking system consists of a large number of physical buildings, including branches, offices, data centers, and other facilities. These buildings require energy for lighting, heating and cooling, elevators and escalators. and the operation of electrical equipment. This includes the energy used to operate exchanges, clearinghouses, and other financial market infrastructure, as well as the energy used to support financial services such as payment processing and data management.
Heating and cooling systems: Many banks have large, complex heating and cooling systems in place to maintain a comfortable temperature in their buildings. These systems require energy to operate.
Logistics and transportation: The banking system involves the transportation of people, documents, coins, physical assets, cash, financial products, equipment, ATM’s, uniforms, office equipment (pens,paper, fans, etc) . This transportation often requires energy in the form of gasoline or diesel fuel. Financial institutions often have employees and assets located around the world, leading to significant energy use for air and ground transportation.
Production of cash and coins: The production of cash and coins also requires energy, as it involves the operation of manufacturing facilities and the transportation of the finished products to banks and other distribution points. In addition, the production of cash and coins can have negative environmental impacts in other ways. One significant impact is the use of natural resources, such as paper and metal, in the production of cash and coins. The production of paper and metal often involves the use of toxic chemicals, and the extraction of these resources can have negative impacts on forests and other ecosystems. For example, the production of paper and pulp can lead to deforestation, as trees are cut down to make way for new plantations. Similarly, metal mining can have negative impacts on the environment, including water pollution and habitat destruction. Another environmental impact of cash and coin production is the use of plastic. The production of plastic requires energy, and it can produce greenhouse gases and other pollutants as a byproduct.
Data centers: The banking system relies heavily on digital infrastructure and technology. One major source of energy consumption in the financial sector is the data centers that support online banking, trading, and other financial services. Data centers require large amounts of electricity to power and cool their servers, and the energy demand of these facilities is expected to increase as financial institutions rely more heavily on digital technologies. In addition, the financial sector is responsible for significant energy use in buildings, including office buildings, branch locations, and trading floors.
In conclusion, the environmental costs of banking and financial services are a significant and often overlooked aspect of the traditional fiat financial system. From the energy used to power bank branches and data centers, to the carbon emissions associated with transportation and the millions of people employed in the sector, the financial sector has a significant impact on the planet.
