*James Robertson's
Newsletter No. 30 - May 2010 *
The full Newsletter can also be viewed at
www.jamesrobertson.com/news-may10.htm
<http://www.jamesrobertson.com/news-apr10.htm>.
=====================================
A GOOD QUESTION,
As We Face The Hardship Years Ahead
Why, in modern democracies, should we continue to allow commercial banks
to enjoy the privilege of creating the national currency and money
supply, instead of transferring responsibility for creating it in the
national interest to a public agency?
A draft "Proposed Bank of England Act 2010" to implement this banking
and monetary reform is now on the internet at
www.bankofenglandact.co.uk. It has been prepared for "a group of
economists, lawyers, engineers, former civil servants, university
academics and business people who have realised that the root of the
instability in the world economy, and huge burden of debt in every
country, is due to the fundamental design of the banking system".
This monetary and banking reform will directly help our new government
to deal with two of our most urgent economic problems. It will help to
ease the burden of paying off our massive public debt - see
www.bankofenglandact.co.uk/benefits-of-reform. It will also prevent
future banking failures from causing credit booms and busts that result
in damaging financial crises.
The reform will transfer the function of creating the money supply to
the Bank of England from the commercial banks. The Bank will create the
amount of money it decides is necessary to meet the published objectives
of monetary policy laid down by the elected government and Parliament.
The Bank will give the money it creates to the government, and the
government will spend it into circulation on public purposes under
normal democratic budgeting procedures. This will be a permanent, more
democratic development of the Bank's recent creation of money by
"quantitative easing" to support the banks.
The proposed reform will remove the present subsidy to the banks in the
form of special profits made by them from being allowed to create the
money supply. So, as well as requiring the government to carry out more
efficiently its responsibility for a public money system that serves the
public interest, the reform will motivate the banks to meet the
borrowing and lending needs of the economy more efficiently and less
expensively in a more competitive market economy.
More people are now becoming aware that we depend unnecessarily on the
commercial banks to provide us with more than 95% of the national money
supply; that the banks now create it as bank-account money ('credit')
out of nothing, in the form of interest-bearing loans to their customers
(profit-making debt); and that less than 5% is now created as banknotes
and coins by the Bank of England and the Royal Mint as agencies of the
state. Hitherto, very few people have realised that our money supply is
created that way. As the numbers grow who realise it, how will they
respond to that knowledge in the hardship years ahead?
The "Banking Reform" section of the new government's coalition agreement
between the Conservatives and Liberal Democrats -
http://news.bbc.co.uk/1/hi/uk_politics/election_2010/8677933.stm -- does
not mention this more basic commonsense reform. It would, in fact, be a
simpler way of dealing with almost all the points covered in the agreement.
Opponents are already complaining that the new government's "Banking
Reform" proposals will put UK banks at a competitive disadvantage in
favour of other countries' banks, and say that this will reduce the
amount of tax the UK banks contribute to the Exchequer and the
contribution they make to our economy. The same claim will be made
against the simpler and more basic banking and monetary reform discussed
in this note.
Those claimed reductions in benefits will almost certainly be greatly
offset by the reduction in the present cost of money which every
activity in the economy now has to bear - whether in booms or busts or
normal times - as a result of the present way of creating it. Unbiased
cost/benefit calculations covering the longer-term and shorter-term
plusses and minuses (costs and benefits) would no doubt confirm that
conclusion. The new government should be encouraged to commission them
urgently.
James Robertson 17 May 2010
The Old Bakehouse, Cholsey
Oxon OX10 9NU, UK
Tel: +44 (0)1491 652346
e-mail: [email protected]
www.jamesrobertson.com
PS. Please feel free to distribute this to anyone who might be interested.
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