Modernising Money

"When banks extend loans to their customers, they create money by crediting their customers' accounts." - Sir Mervyn King, Governor of the Bank of England (2003-2013) Money creation process.

"When banks extend loans to their customers, they create money by crediting their customers' accounts." - Sir Mervyn King, Governor of the Bank of England (2003-2013) Money creation process. When a bank makes a loan, it simultaneously creates a deposit in the borrower's account, effectively creating new money. This process accounts for approximately 97% of the money supply in modern economies, with only 3% being physical cash created by central banks. Consequences of bank money creation: Increased purchasing power in the economy without a corresponding increase in goods or services Banks profit from interest on money they create, rather than intermediating existing funds Money supply is determined by banks' profit-seeking behavior rather than economic needs

"The financial crisis of 2007/08 occurred because we failed to constrain the private financial system's creation of private credit and money." - Adair Turner, Chairman of the UK Financial Services Authority Boom-bust cycle. Bank lending tends to be procyclical, with excessive lending during economic booms fueling asset price bubbles, particularly in real estate. When these bubbles burst, banks restrict lending, causing a contraction in the money supply and economic recession. Financial instability consequences: Periodic banking crises (on average every 15-20 years in developed economies) Massive economic costs (estimated $60-200 trillion in lost global output from 2008 crisis) Taxpayer-funded bank bailouts to prevent systemic collapse

"Banking is not money lending; to lend, a money lender must have money. The fundamental banking activity is accepting, that is, guaranteeing that some party is creditworthy." - Hyman Minsky Inequality. The current system transfers wealth from the bottom 90% to the top 10% through interest payments on the entire money supply. Banks profit from creating money, while the public bears the cost of using it. Environmental impact: Pressure for constant economic growth to service growing debt levels Short-term profit focus discourages long-term environmental investments Economic instability leads to relaxation of environmental regulations during downturns

"Of all the many ways of organising banking, the worst is the one we have today." - Sir Mervyn King, Governor of the Bank of England (2003-2013) Money Creation Committee. An independent body, similar to the current Monetary Policy Committee, would be responsible for determining how much new money to create based on economic conditions and inflation targets. Benefits of public money creation: Separation of money creation from government spending decisions Transparent and accountable process Ability to create money without corresponding debt Direct control over money supply to maintain economic stability