Quantitative Balancing Proposal: Key Points and Considerations

Quantitative Balancing Proposal: Key Points and Considerations

by Deep Seek AI (corrected, annotated)

https://chat.deepseek.com

The Quantitative Balancing proposal seeks to reform the financial system by restructuring bank liabilities and centralizing seigniorage. Below is a structured summary of the proposal's objectives, mechanisms, and critical considerations:

Core Objectives

1. Financial Stability: Ensure customer deposits are 100% safe by segregating them from bank balance sheets.

2. Seigniorage Recovery: Redirect 100% of seigniorage (profits from money creation) to the State Treasury.

3. Systemic Simplification: Consolidate bank and state accounts to neutralize financial risks, resulting in a net-zero balance.

Mechanisms

1. Reclassification of Liabilities:

   • Bank Liabilities: Rename customer deposits as "Debts to State Treasury," transferring responsibility for these funds to the state.

   • State Credits: Record these debts as "Credits from Bank Seigniorage" in the Treasury, capturing profits from money creation (M2).

2. Segregation of Customer Accounts:

   • Remove customer deposits from bank balance sheets, insulating them from bank insolvency risks.

3. Consolidation of Accounts:

   • Offset bank liabilities (now state debts) against state credits, theoretically achieving a zero net balance.

Strengths of the Proposal

1. Deposit Safety:

   • Eliminates risk of bank runs, as customer funds are state-guaranteed.

   • Aligns with public demand for secure savings mechanisms.

2. State Control Over Money Creation:

   • Centralizes seigniorage, enabling the state to reinvest profits into public goods (e.g., infrastructure, social programs).

   • Reduces private banks' profit-driven incentives in money creation.

3. Simplified Financial Architecture:

   • Streamlines accounting by consolidating bank/state liabilities, potentially reducing systemic complexity.

Critical Considerations and Challenges

1. Bank Functionality:

   • Lending Incentives: If banks lose seigniorage profits, mechanisms must exist to ensure continued lending (e.g., state-backed lending programs).

   • Role of Banks: Banks may transition to intermediaries (as they are actually supposed to be) , raising questions about their profitability and operational models. (? Intermediaries do have profits)

2. Monetary Policy Implications:

   • Central Bank Independence: Potential conflict between state control of seigniorage and central bank mandates (e.g., inflation targeting). (How? Total money is the same, there is only a name change of liabilities...)

   • Money Supply Management: Requires robust frameworks to prevent inflationary risks (?) from state-controlled money creation. (Control does not imply inflation)

3. Moral Hazard:

   • Bank Risk-Taking: Banks might engage in riskier behavior if shielded from deposit liabilities.

   • State Fiscal Burden: Guaranteeing deposits could strain public finances during crises. (The guarantee is that the state will be less indebted: a better Debt/GDP ratio. The only real guarantee for deposits is to be segregated from bank own funds)

4. Implementation Hurdles:

   • Regulatory Overhaul: Requires global coordination to align accounting standards, banking regulations, and international treaties.

   • Technical Complexity: Transitioning to a new financial architecture demands significant infrastructure changes. (Really? How?)

5. Economic and Political Feasibility:

   • Public Trust: Success hinges on maintaining confidence in state-managed money.

   • Political Will: Resistance from private banks and stakeholders accustomed to current profit models. (Honest accounting has a price...)

Comparison to Existing Models

• Sovereign Money Systems: Similar to proposals where only central banks create money, but differs by retaining commercial banks as intermediaries.

• Deposit Insurance: Extends beyond partial guarantees (e.g., FDIC) to full state ownership of deposits. (ownership of seigniorage)

Conclusion

The Quantitative Balancing proposal offers a bold reimagining of financial systems, prioritizing stability and public control over money creation. While theoretically appealing, its success depends on addressing operational, economic, and political challenges. A phased implementation, rigorous risk management, and international cooperation would be essential to mitigate unintended consequences and achieve systemic resilience.