Manuscripts and Papers
Seigniorage: The banks' privilege of creating the bankmoney on which they operate costs the taxpayer a lot of extra money - foregone to the public purse to the benefit of the banking industry
Researchers from the New Economics Foundation (NEF), London, and the Copenhagen Business School (CBS) have developed a new approach to determine the banks' extra profits from primary credit and bankmoney creation. In an empirical case study including the UK, Denmark, Switzerland and Iceland they also have specified the numbers: up to three quarters of banks' profits. About time to do away with that neo-feudal privilege …
Martin Wolf, chief economics commentator of the Financial Times, explains in an interview with Rens van Tilburg, Sustainable Finance Lab, Utrecht University, what's wrong with the financial system.
Bank of England Coming Clear about Deposit Creation
For the first time in decades, a central bank, the Bank of England, has openly explained that
- banks create deposits pro-actively irrespective of their reserve position
- banks do not need customer savings for granting credit and in fact cannot make use of them
- central banks do not control the quantity of money.
Above is a BoE video on these questions. A paper in the BoE Quarterly Bulletin, 2014 Q1, deals with the same subject > Money Creation in the Modern Economy.
David Graeber comments on the paper in The Guardian, 18 March 2014 > The truth is out.
The BoE paper is a welcome step forward, even though some crucial components of deposit creation and monetary policy are still missing:
- the (fractional) interplay between central-bank reserves and bankmoney is not explained
- deposit creation by bank purchases is not mentioned
- any demand for money is taken on unchallenged, no matter how large it is and whether it is destined for real-economic or purely financial purposes
- central-bank interest rate policy, i.e. setting base rates and influencing interbank rates, is portrayed as an effective instrument for controlling inflation (which is highly questionable)
- asset inflation is not recognised as a target of monetary policy.
For a résumé by Positive Money > click here.
• Positive Money on > 'all the nitty-gritty technical detailsof money creation by banks
Most people still do not know that it is the banks that create almost all of our money, not the government or central bank. The majority of people in each of 20 countries clearly prefers the latter, as revealed by a representative> international survey by Motivaction and Sustainable Finance Lab, University of Utrecht, NL.
The video obove On the Functioning of Fractional Reserve Banking was registered at the 12th American Monetary Institute's Annual Reform Conference, Chicago, Oct 2016
Anshu Jain, ex Co-CEO of Deutsche Bank, apparently thinks of his monetary institute as a nonbank savings and loan association; or as a mere investment trust. He believes in the loanable funds model of banking, as if we already were in a sovereign money system. In this video, H.Scharpf raised the question.
• Steve Keen > The Debtwatch Manifesto tackles, among other things, the urgent problem of debt deflation.
• Norbert Häring: The veil of deception over money. How central bankers and textbooks distort the nature of banking and central banking, real-world economics review, no.63, March 2013.
• Mark Joób > DEMOCRATIC ACCOUNTABILITY OF BUSINESS AND MONETARY REFORM, 2013. The author is on the managing board of the Swiss monetative.ch and teaches economics and ethics at the West-Hungarian University in Sopron, Hungary.
Prof Michael Schemmann, International Institute of Certified Public Accountants, has long criticised the practice of creating credit by way of extending a bank's balance sheet and treating the resulting demand deposits like 'cash'. In an > open letter he calls on the professional corporations to put an end to this practice.
• Ulrich Bindseil, The Operational Target of Monetary Policy and the Rise and Fall of Reserve Position Doctrine, ECB Working Paper Series, no. 372, 2004.
• Here you can download > Money and Macroeconomic Dynamics, an accounting system dynamics approach to analysing the effects of the monetary system, parts I - III, by Kaoru Yamaguchi, professor of economics and system dynamics, Japan.
• Banking: From Bagehot to Basel, and Back Again, speech by Mervyn King, former Governor of the Bank of England, 25 Oct 2010.
• Ron F. Morrison on > Debt and Deception, Onlinebook 2011.
"Every loan, overdraft, or bank purchase creates a deposit, and every repayment of a loan, overdraft or bank sale destroys a deposit."
Right Honourable Reginald McKenna, Former British Chancellor of the Exchequer and Chairman of the Midland Bank, 1924.
Positive Money, London: What is money? where does it come from? and how does the money system work?
What is responsible for the crisis?
"We’ve got the potential to do so much harm by not getting the creation of fiat credit and money right."
William White, former economist at the Bank of England, the Bank of Canada, and the Bank of International Settlements.
“The financial crisis of 2007/08 occurred because we failed to constrain the private financial system’s creation of private credit and money… Banks as we know them today – fractional reserve banks – ... can create credit and private money, and unless controlled, will tend to create sub-optimally large or sub-optimally unstable quantities of both credit and private money.”
Lord Adair Turner, then Chairman of the UK Financial Services Authority, in a speech to the South African Central Bank in 2012.