MONETATIVE.de: Mission Statement

Mission Statement

Monetary Power
Taking Money Creation back into Public Hands

The current financial crisis is rooted in the monetary system as it stands today. This system creates excessive credit which inevitably feeds speculative bubbles, asset and consumer price inflation, and results in over-indebtedness. In order to work properly, the economy needs to rely on a stable and just monetary system.

That is why we call for

1. the full re-establishment of the public prerogative of creating money
2. an end to the creation of money by means of commercial bank credit
3. spending new money into circulation debt-free through public expenditure.

Money makes the world go round. Who makes the money go round?

Everybody uses money as though it were self-evident. But the actual functioning of the monetary system remains just as nebulous as its characterisation as ‘fractional reserve system’ or ‘multiple credit creation’. This works to the benefit of the banks. They have in effect usurped the prerogative to create money by crediting 80-95 % of the means of payment into circulation in the form of demand deposits on current accounts.

An increasing part of the money supply has of late fueled mere financial transactions which had no benefit for the real economy, but have caused much real damage to it. The barely restrained creation of credit drives business cycles and the stocks and securities markets into irrational exuberance - wildly overshooting in boom periods, while resulting in over-indebtedness and severe undersupply of money in ensuing crises. If banks themselves go bust, their customers’ deposits and savings are at risk. If the state then intervenes to bail out the banks and vouch for deposits, governments in effect privatize banking profits, while passing the losses on to the public.

Banks act as individual companies. They are duty bound neither to macro-economic goals nor to the common interest. Leaving to them the weighty prerogative of creating the official means of payment is untenable. Money and the monetary order represent concerns of constitutional importance.

Nationalization of money, not of banking

All money should exclusively be created by an independent public authority. In the European Monetary Union this role falls to the European Central Bank and its national member bodies. They ought to be seen as the fourth power in the state: the monetary power, to complement the legislative, executive and judicial powers. As with the latter, the monetary power must be independent and answerable only to the law. In such a monetary regime, local complementary currencies and co-operative clearing systems can co-exist.

Seigniorage would fully benefit the public purse and no longer be an undeserved banking extra profit. To this end, discretionary additions to the money supply would be transferred free of interest from the central bank to the government that spends it into circulation. In recent years this has involved 200-350 billion euros p.a. within the European Monetary Union. This represented an overshooting supply, but even half of it would still account for about 1.5 per cent of GDP or about 3 per cent of total public expenditure.

The monetary reform envisaged here is simple: Bank-money on account would be declared to be legal tender just like coins and banknotes. The system of public central banks - the monetary power - would exclusively be authorized to create these official means of payment and regulate the quantity thereof. Money on account would thus be nationalized in the same way as banknotes were nationalized over a hundred years ago. At that time, privately issued banknotes were phased out in favor of public banknotes issued by the central bank. Today the crux of the matter is to replace the debt-laden, unstable and unsafe bank-money on account by a public money base which is free of debt and interest. Today’s partially nationalized money base (5-15% coins and banknotes) would fully be nationalized, not however the banks.

Banks and financial markets should be able to freely pursue all but one of their current activities: that of creating money by crediting it out of thin air into customers’ current accounts. Banks would have to operate purely within the means which they have obtained as earnings or taken up at the money market or from their customers. Banks would hold that money in cash or non-cash in their account with the central bank.

Putting an end to the banks’ ability to create credit can be achieved in a technically rather simple and smooth way: Customers’ current accounts would be taken off the banks’ balance sheet and run separately in their own right.

Making money creation fit the public interest

As a consequence, money on account could no longer disappear and would thus be safe. If a bank failed there would be no reason for a run on that bank. Bounds would be set on the banks’ procyclical over- and undershooting of the money supply. Money flows would be steadier, and real and financial business cycles more moderate. Whereas credit creation by the banks is prone to asset and consumer price inflation, the central bank would have full control of the quantity of money and would thus be able to prevent inflation by managing the money supply in accordance with real economic potentials. Seigniorage would then entirely benefit the public purse.