Open letter to Iceland's Parliament on money reform

On the monetary reform resolution: the need for proper cash flow accounting

March 1, 2016

Dear Ladies/Sirs,

Bank money created as deposit is defined as 'cash' in current international accounting standards, so it must be accounted for as cash in the same bank cash flow statement - which currently is not.
(See here: Cash Flow Accounting in Banks— A study of practice, Ásgeir B. Torfason, University of Gothenburg, 2014 )
https://gupea.ub.gu.se/handle/2077/35272

By accounting for money created as an inflow in the cash flow accounting you solve most of the current issues:

1) the surfacing of 'electronic money seigniorage' that now is hidden;

2) banks will never again 'go under';

3) there will be no more unbalances in the inter-central bank clearing systems (in the TARGET2 currently there is an unbalance of 62 billion euro, this is in the Eurosystem);

4) real profits of bank activity - either central bank and commercial banks - are exposed and can be taxed relaxing the issue of government debt;

5) by making banks responsible for money creation - by making them 'accountable' in accounting terms - the moral hazard is decreased;

6) the central authority can know how much money is really circulating and best manage the monetary policies;

7) the macroeconomics models can take into account the money creation side of the economy (actually there is only one open source model that can make right predictions taking in account the money created as an asset for banks - called Minsky - and it is developed by professor Keen from Australia).

So now You have the tools to make some sense of the monetary reform.

Thanks You for Your kind consideration,

Marco Saba
President at IASSEM
Istituto di Alti Studi sulla Sovranità Economica e Monetaria