A simple reform to the way money is created would end the debt crisis, reduce poverty and reinvigorate the economy, say campaigners
Positive Money, a not-for-profit research and campaign group, believes it has identified the core problem behind the ongoing economic crisis, as well as the solution. The issue, the group says, is the way in which money is created.
The Bank Charter Act 1844 made it illegal for anyone but the Bank of England to print and issue notes in England and Wales. However, following deregulations, the advance of computer technology and the law not being updated, it became possible for banks to create digital money – numbers in an account – in the form of loans, overdrafts and other credit.
According to Positive Money, by creating a digital loan, at the same time the bank is creating a deposit in the borrower’s account, which means it is creating money that did not previously exist.
Josh Ryan-Collins, senior researcher at nef (the New Economics Foundation), said it is a myth that banks are just intermediaries. “In the UK there is no compulsory deposits reserve ratio,” he said, meaning that banks do not need savers’ money held in reserve in order to lend money to borrowers.
Positive Money reports that of all the money in existence in the UK, 97% is now digital with only 3% being cash currency.
Michael Meacher MP
Established in 2010, the group is calling for the right to ‘print’ digital money to be allocated exclusively to the Bank of England. Positive Money has created draft legislation for this purpose, which it says is “watertight and substantial” and if put in place would ensure the banking system works in the best interests of society.
Under its proposals, an independent, transparent body such as the Monetary Policy Committee would decide how much new money is created, with parliament deciding how it is spent.
At a conference in London, organised by Positive Money on 29 October 2011, the group’s founder, Ben Dyson, suggested that two ways in which new money could be effectively allocated are to cover a cancellation of VAT and a rise in the income tax threshold – measures that he believes would benefit high street businesses and people on lower incomes. “It would stimulate the economy at the bottom,” he said.
Positive Money is also advising that banks should separate current accounts, where deposits would be kept safe, from investment accounts where customers would understand there is a risk. Banks should also tell people how they will use their customers’ money, the group believes.
Members of the public gathered at the London conference to hear economists, ex-financial traders, MPs, campaigners and entrepreneurs discuss the proposals.
Speaking at the event, Steve Baker MP referred to the way banks control money as “thin air credit creation,” adding that we need “a paradigm shift in economics.” He praised Positive Money’s proposals, believing they transcend political preferences. “I have optimism and can see things going in this direction,” he said.
Ben Dyson revealed that in his opinion, Baker is one of only a handful of MPs who understand how money is actually created. “Authorities, MPs, journalists, the public and people at the treasury don’t understand this process,” he said. “We have a fully privatised money system.”
Dyson continued by stating that what he considered productive lending – to businesses providing goods and services and creating jobs – represents only eight percent of bank lending, whereas the remaining 92% goes to property and financial speculation.
By diverting new money to the productive high street economy, rather than the banks lending it out as debt, poverty would reduce, he said, while falling debt would also mean better equality as less money would be redistributed from the poor to the rich by payment of interest.
Also speaking at the event, Michael Meacher MP said: “The control of the money supply should be brought back into the public domain,” adding that he believed this will be “the single most important issue at the next election.”
Joining Steve Baker MP, a Conservative, in expressing optimism, the Labour MP praised Positive Money as “saying something of enormous overriding importance for this country.”
Following extensive research, Positive Money is concentrating on raising awareness. It offers a range of simple, short videos on its website, detailing how the banking system works as well as explaining its suggested reforms. With a growing online membership, the organisation is holding campaign ‘meet-ups’ across the UK, with 30 having taken place to date.
Photo title: Monetary reform campaigners Ben Dyson, Andrew Jackson and Mira Tekelova
Photo credit: © Positive Money