British Parliament to Debate Money Creation
Money creation may well be the biggest economic issue of our times. The way that new money is created has a massive impact on our entire economy and, in fact, it would not be an exaggeration to suggest that it is the defining characteristic of our economic system.
Across the world, in all of the major economies, money creation is dominated by banks. Despite the fact that ‘fiat money’ – the dollars, pounds or euros in our pockets – is backed by our governments as the official currency we are supposed to use, the government has no involvement in its creation.
This comes as a surprise to many people. We naturally assume that money creation is handled by some national agency operating purely in the national interest. But in fact, the vast majority of money is created by commercial, profit making banks who do it in order to make themselves wealthy. The Bank of England explains this succinctly:
“Commercial [i.e. high-street] banks create money, in the form of bank deposits, by making new loans. When a bank makes a loan, for example to someone taking out a mortgage to buy a house, it does not typically do so by giving them thousands of pounds worth of banknotes. Instead, it credits their bank account with a bank deposit of the size of the mortgage. At that moment, new money is created.” (Money creation in the modern economy).
So banks effectively create money out of thin air and then treat it as if it belongs to them, lending it out to customers and charging interest to make a profit. A smaller part of the money supply is also created by central banks, such as the Federal Reserve in the United States. These central banks are independent of government, but are not independent of the banking sector – in fact central banks are jointly owned by groups of large commercial banks.
The upshot of all this is that there is no pressure or impetus for money creation to be handled in a way that is in the national interest of the public, but a strong pressure for it to be handled in a way that is in the interests of the banking sector. Banks profit handsomely, not only by being given free money to lend out, but also by being the first to access that capital before its introduction into the economy causes inflation (reducing the value of each unit of currency in circulation). Meanwhile the rest of us only get one thing out of this relationship – debt. Every dollar or euro in our economies represents a debt which somebody must repay to the banks with interest. This is a debt which we can never repay. Because every single dollar in the US economy, for example, is owed to the banks with interest, this means that if every citizen in the country were to give every penny they own to the banks, they would still not have repaid the whole debt. The banks literally own our entire economy plus a little bit more.
The problem of money creation being run by the banks, in the interest of the banks, whilst pushing the rest of us further and further into a debt which can never be repaid, is well known within the Bitcoin community. In fact the dream of building a currency whose creation is controlled and owned by the people, for the people, and which does not create a corresponding debt burden, is a big part of what makes Bitcoin so special to so many people.
But Bitcoiners are not the only ones who see a problem with money creation as it is today. The Positive Money campaign in the UK has been petitioning the government on these issues for a long time. They are calling for three things:
1. Take the power to create money away from the banks, and return it to a democratic transparent and accountable process
2. Create money free of debt
3. Put new money into the real economy rather than financial markets and property bubbles
After a great deal of effort the Positive Money campaign has succeeded in getting enough political support for a back bench debate in the British parliament on money creation on November 20th. This is a small victory which will almost certainly turn out to be purely a ‘talking shop’ which will not lead to any real change. But it is at least a starting point which may help to educate our political class about the importance of this issue, and which may even help them to understand the huge promise behind Bitcoin.
If you live in the UK and would like to find out how to contact your MP to find out if they are attending and to let them know how important this issue is, and how Bitcoin can help, you can find a list of MPs’ office phone numbers here. You may also like to help the Positive Money campaign to raise the profile of this cause with our leaders in the future by signing their petition.