Bernard Lietaer - The Future of Money - Full Book

Understanding the relationship between interest rates and time perception will be accomplished in the three following steps: . comprehend how capital allocation decisions are generally made through the financial technique of 'Discounted Cash Flow'; · how such discounting of the future is one of the key underlying causes which create a direct conflict between financial criteria and ecological sustainability under our present money system; · and how the discount rate used in the Discounted Cash Flow technique is directly affected by the interest rate of the currency used in the cash flow analysis.

'Discounted Cash Flow' = ‘ Discounting the Future’ 'Discounted Cash Flow' is the financial technique generally used to decide on whether to invest in a given project, or to compare different projects. It is presented in full detail in any finance textbook.

What we need to understand about it here can be explained by a simple example. Let us assume that a particular project requires a $1,000 investment today, and that it will produce a net profit of 8 100 on the first day of each subsequent year for the next 15 years. Let us further make the assumption that there is no inflation during that period of time. Figure 8.3 shows what the real cash flow of that project would look like: it starts with a negative - 1,000 when the cash outflow occurs today, and for each of the next 15 years we have the same amount of $100 shown on the positive side.

He will still see the same negative $1,000 in year 0.

But the income of $100 after the first year will only be worth 891 assuming the interest rate is a flat 10% per year for the entire