News Commentary (from The Guardian): “Money for nothing” Banks should be repositories for our wealth – and not be free to create money at will. We should take monetary reform seriously.
Nothing in that lengthy communiqué suggests the G20 is prepared to engage with the underlying causes of the financial crisis. Chief among these is the deeply flawed mechanism by which money is created.
Herman Daly wrote recently: “I would certainly advocate 100% reserve requirements for banks (approached gradually). All banks should be financial intermediaries that lend depositors’ money, not engines for creating money out of nothing and lending it at interest.”
Daly’s argument for movement towards a just and sustainable steady-state economy offers a comprehensive solution to the current crisis.
Cash comprises just 3% of the money supply. The rest exists only as entries in banks’ electronic ledgers.
If banks can create electronic money at will through the process of fractional reserve banking, why shouldn’t a democratically accountable central authority do the same? … central banks should determine the quantity of new non-cash money. Under their scheme, the central bank would credit new money to the government as public revenue which would then be spent into circulation.
Bryan Gould said, “Only governments have the capability and the duty to act in the wider interest” in respect of the money issue.
The objective of monetary policy should be to ensure that the money supply accurately reflects the quantity of real wealth being created in the economy, and is sufficient to provide funds for new investment in real businesses to keep the economy ticking over.
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