Our broken money system can be fixed
By changing the way that money is created, we can tackle some of the major social and economic problems we're facing today.Watch the Talk (30 mins)
If we want to deal with the big social, economic and environmental challenges that we’re facing today, then reforming the monetary system is a good place to start. We’ve spent the last three years researching the problems caused by the current debt-based monetary system and developed in-depth proposals.
This is what we think needs to change to fix our broken money system:
We’d like to see the power to create money transferred to a democratic, accountable and transparent process, where everyone knows who has the power to create money, how much money they create, and how that money will be used. However this process is set up – whether it’s the Bank of England or a new committee that decides whether to create money, it must be accountable to Parliament and protected from abuse by vested interests. We also want to see safeguards that ensure that the right amount of money is created – not too much (causing bubbles and a financial crisis) and not too little (causing a recession).
Currently, banks create money when they make loans, which means that for every pound in your bank account, someone somewhere else will be a pound in debt. It means that almost all the money in the economy is effectively ‘on loan’ from the banking sector, and interest must be paid nearly every pound that exists. If we try to reduce our debts, money disappears from the economy, making it harder for others to repay their own debts. But if money was created by the state, in the public interest, and spent into the economy through government spending instead of being lent into the economy by banks, then that money would stimulate the real economy, create jobs, and make it possible for ordinary people to start reducing their own debts.
Any newly-created money should be used to fund public spending, reduce taxes, pay down the national debt or even just distributed to citizens. This means that the money will start its life in the real (non-financial) economy instead of getting trapped in financial and property markets, as happens at the moment.
This will help the economy grow, creating jobs in the process, whereas much of the money that banks create today simply makes life more expensive and unstable for people.
History has shown that when banks have the power to create money, they create too much in the good times, causing financial crises, and then create too little money in the bad times, making recessions and unemployment even worse. They put most of the money that they create into house price bubbles and speculation on financial markets, and only put a small amount into businesses outside the financial sector. We simply don’t think that banks, with all their incentives and need to maximise their profits, can be trusted with something as powerful as the ability to create money. And it’s not enough to regulate them, because regulators have already failed to keep them under control, and there’s no reason why they should get it right this time around. We need to stop banks being able to create money.
When we rely on banks to create most of our money, then the only way of getting more money into the economy – and allowing it to grow – is to encourage people to go further into debt. This is why UK government policy is focused on ‘getting banks lending again’ and encouraging people to borrow more for mortgages. But the financial crisis was caused by a huge build-up in private debt, so allowing that debt to increase even further could lead us into another crisis.
What we need right now is to have a way of getting extra money into the economy, but without relying on households borrowing even more. This can happen if the Bank of England creates money and transfers it to the government to be spent into the real economy (rather than the financial or property markets). Our Sovereign Money proposal explains how this could work, how it would lead to a boost in jobs and employment, and how it would make the current debt-fuelled recovery into a sustainable one.
Ultimately, we think that the economy would be more stable and society better off if we completely remove the power that banks have to create money. These ideas have been around since the 1930s, but we’ve done a lot of work to update them for the modern financial system. You can find out more below:
Positive Money Founder, Ben Dyson, presenting at the 3rd annual Positive Money Conference “Modernising Money” on 26th January 2013 in London, explains the main principles behind the monetary reform proposals which offer one of the few hopes of escaping from our current dysfunctional monetary system. Watch now (33 mins)
A 30-page plain English explanation of how we can fix our money system, written for people with no background in economists or banking. It explains how we can prevent commercial banks from being able to create money, and move this power to create money into the hands of a transparent and accountable body, who would create money in line with the needs of the economy and grant it to government to be spent into the economy.
Why Our Monetary System is Broken, and How We Fix It. The product of three years of research and development, these proposals offer one of the few hopes of escaping from our current dysfunctional monetary system. It is detailed but accessible to non-economists.
A more technical presentation of our reforms, for economists and those with some knowledge of money and banking. It explains how the reforms work from the perspective of a) bank customers, b) the banks themselves and c) the central bank.
This unofficial draft bill shows how our proposals could be implemented in law in the UK parliament.
Join the 16,748 of us who know that our money system needs fundamental changes if we want an economy that works for people, not banks.