Banking on change
19 May 2011
Positive Money is a campaign and research organisation calling for monetary reform. We’re seeking answers to two very important questions, who creates money, and how is it created?
The answers are easy, but the implications less so. Private banks are responsible for creating more than 97% of the money in the economy, and they do it through making loans. The government gave the banks this power and we don’t have any say over how it is used. As highlighted in my previous piece for this column, this situation has significant consequences for society.
But there are more stable, sustainable and fair alternatives and now an increasing number of economists are becoming critical of the status quo, while more politicians are becoming aware of the situation.
From being a completely unknown organisation when we formed in May 2010, we have now aligned ourselves with numerous politicians and organisations such as nef (the New Economics Foundation) and Compass in calling for ‘full reserve banking,’ which we feel is the best solution. Full reserve banking gives the power to create money back to the Bank of England, where it can be democratically controlled. This would make the banking system far safer and would work for society, not against it.
Recently, we presented our findings to the Independent Commission on Banking (ICB), which was set up in response to the financial crisis. Unfortunately the commission was asking the wrong questions, focusing on how to increase competition and stability within banking, rather than tackling the negative effects on poverty, sustainability, inflation, housing, or the country’s finances.
As a result the commission was dismissive of our proposals on the grounds that they would be expensive for the banking sector. Our intention was to remove the ability of banks to profit at the expense of society, which would indeed be expensive for the banking sector and rightly so. We haven’t let this hamper us, but it’s shown that we need to raise awareness among politicians. Most we met didn’t realise that banks could create money, which is concerning, as while we make drastic cutbacks in spending the banks create roughly one and a half times the entire education budget each year.
Fortunately there are now both Labour and Conservative politicians calling for fundamental banking reform. Conservatives Steve Baker and Douglas Carswell have been researching and proposing reform for some time, while Labour MP Michael Meacher recently joined the ranks. After meeting us he realised fully how serious this situation is and the potential benefits of changing to a better system.
After the disappointing results of the ICB report, Positive Money is supporting and joining the coalition for a new campaign, Banking on Change, which is calling for a full public enquiry into the financial crisis and the various effects of the banking system on society.
Unlike the Royal Commission format, this inquiry would accept evidence and conducts its hearings in a public forum. Interested members of the public and organisations may not only make written submissions but also listen to oral evidence given by other parties. This will stimulate a wider debate and will bring this issue the attention it deserves.
Paul Moore is heading up the Banking on Change campaign. Readers may remember him as the former head of regulatory risk at HBOS, who in 2005 approached the company’s executives and warned them repeatedly that they were taking risks with financial stability and consumer protection. Paul was famously sacked and became a whistleblower in 2009. With a strong media personality, Paul is a great figurehead for this new campaign.
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