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<< Monetary Reform

Who Should Create The Money Supply?
Should It Be Created As Debt Or Debt-Free?

1. Who decreed that 21st-century societies must depend for their supply of money on banks creating it for their own profit? Not God; no faith scriptures teach it. Not Nature; winds, tides, plants, trees, animals - none use money. Humans made this system work as it does. Intelligent humans can reform it.

2. Most of the money now used in the international economy is money created as debt in the currency of one country, the US dollar. In national economies most of the money now used is created by commercial banks as debt, written into their customers' accounts as loans. (In the UK, for example, less than 5% is created as coins and banknotes by public agencies, and over 95% by commercial banks.) Central banks try to use changes in interest rates to control how much money the banks create.

3. That isn't effective. All the ninety recent credit booms and busts in various parts of the world have taken a similar form. The banks have hugely profited by creating too much money in the booms, and have then received huge bail-outs in the busts in order to reactivate their privilege of providing the money supply.

4. The conventional response to the present crisis is now combining a massive increase in future debt with new top-heavy regulation in order to reactivate the banks' privilege once again. These features of the new "financial architecture" are crazy. They ignore what first-year students of architecture are taught: see that the foundations are sound before you construct extensions to the upper floors and overload them with heavy burdens. The foundations of "financial architecture" are, of course, money and how it is created.

5. International monetary reform has now been proposed by Brazil, Russia, India and China, to replace the US dollar with a more genuinely international currency administered by an international authority.

6. Shouldn't national monetary reform follow that model? It would include:

  • normalising "quantitative easing" by transferring responsibility to a nationalised central bank to create the debt-free additions to the national money supply which it judges to be in the public interest;

  • requiring the central bank to give the money to the government to be spent into circulation under normal democratic budgetary procedures;

  • making it a crime, like forging coins and counterfeiting banknotes, for anyone other than the central bank to create bank-account money; and

  • denationalising recently nationalised commercial banks to compete unsubsidised in the market for borrowing and lending existing money.

7. For practical details, including safeguards against governments misusing the central bank's new function for their own political purposes, see

The American Monetary Institute's website -

My Newsletter 22 and the accompanying links -

The contents of this Note may, but need not, be attributed to its author.

James Robertson

6th April 2009


<< Monetary Reform