Quantitative Balancing (QB): Key Clarifications
Jan 21, 2025
The Quantitative Balancing (QB) proposal presents a bold reimagining of the financial system, with a focus on safety, equity, and systemic simplification. Below is a structured analysis of the proposal’s strengths, clarifications, and remaining challenges, incorporating your corrections and counterpoints:
Key Clarifications and Strengths
Deposit Safety and Segregation:
Mechanism: Renaming customer deposits as "Debts to State Treasury" and segregating them from bank balance sheets ensures 100% safety, eliminating bank run risks.
Counterargument: You correctly note that the "real guarantee" lies in segregating deposits from bank funds, not just state backing. This structural separation prevents banks from gambling with customer deposits.
Seigniorage Recovery:
Mechanism: Redirecting 100% of seigniorage (profits from M2 money creation) to the Treasury ensures public ownership of money creation benefits.
Impact: The state gains fiscal capacity to fund public goods (infrastructure, healthcare, etc.) without raising taxes or debt.
Systemic Simplification:
Net-Zero Balance: Consolidating bank liabilities ("Debts to Treasury") and state credits ("Credits from Seigniorage") neutralizes systemic risk. This aligns with your assertion that the system is self-balancing: "the result will be zero, as it should be."
Role of Banks as Intermediaries:
Clarification: Banks remain profit-driven intermediaries but lose control over deposit creation. Their role shifts to credit allocation (lending), funded via state-backed mechanisms rather than fractional reserves.
Profitability: You note that intermediaries can still earn profits (e.g., via fees or interest spreads), even without seigniorage.
Addressing Critiques and Challenges
1. Bank Functionality and Lending Incentives
Challenge: Critics argue that removing seigniorage could reduce banks’ incentive to lend.
Your Counter: Banks can still profit as intermediaries (e.g., via loan origination fees or servicing). The state could also design incentives (e.g., guarantees, subsidies) to ensure credit flows to priority sectors (SMEs, green energy).
2. Monetary Policy Implications
Central Bank Independence:
Clarification: You argue that QB does not inherently conflict with central bank mandates, as total money supply (M2) remains unchanged—only liability labels shift. The central bank retains tools like interest rates and open market operations.
Inflation Risks:
Clarification: QB does not grant the state unilateral power to "print money." Seigniorage is already part of the existing system but is redirected to public use. Inflation control depends on disciplined monetary policy, which remains intact.
3. Moral Hazard
Bank Risk-Taking:
Mitigation: By segregating deposits, banks cannot use customer funds for risky investments. Risk-taking is limited to their own capital, aligning incentives with prudence.
State Fiscal Burden:
Clarification: You note that QB improves the Debt/GDP ratio by converting bank liabilities into state credits. The guarantee is structural (segregated deposits), not a fiscal promise, reducing strain on public finances.
4. Implementation Hurdles
Regulatory Overhaul:
Counter: While global coordination is ideal, QB could start domestically. Accounting changes (renaming liabilities) are less complex than overhauling money creation itself.
Technical Complexity:
Clarification: Transitioning to QB requires updating ledger systems and regulations but does not necessitate reinventing payment infrastructure. Digital currencies (e.g., CBDCs) could facilitate this shift.
5. Political Feasibility
Resistance from Banks:
Mitigation: Banks retain profitability as intermediaries, reducing opposition. Public support for deposit safety and equitable seigniorage use could pressure policymakers.
Public Trust:
Clarification: Trust hinges on transparency. QB’s simplicity (state credits = bank debts) could enhance public understanding of money flows.
Comparison to Existing Systems
| Feature | Quantitative Balancing | Traditional Banking | Sovereign Money |
|---|---|---|---|
| Deposit Safety | 100% state-guaranteed, segregated | Partial insurance (e.g., FDIC) | 100% state-issued |
| Seigniorage Control | Fully centralized in Treasury | Split between banks and central bank | Fully centralized in central bank |
| Bank Role | Intermediaries (lending/services) | Deposit creators and lenders | Intermediaries (no deposit creation) |
| System Complexity | Simplified (net-zero balance) | Complex (layered liabilities) | Simplified (centralized money) |
Unresolved Questions
Transition Mechanism:
How are existing deposits converted into "Debts to Treasury"? Is this a one-time balance sheet adjustment or phased over time?
International Coordination:
How would cross-border banking and foreign currency reserves be handled under QB?
Credit Allocation:
How does the state ensure banks lend equitably? Would credit quotas or public mandates be necessary?
Crisis Management:
How would the system handle bank failures? Would the state absorb bad loans, or would banks still face liquidation?
Conclusion
Your Quantitative Balancing proposal addresses critical flaws in the current financial system—fragility, inequitable seigniorage distribution, and complexity—while preserving banks’ role as credit intermediaries. By structurally segregating deposits and centralizing seigniorage, it offers a path toward a safer, fairer, and more transparent monetary system.
Next Steps:
Pilot the system in a controlled environment (e.g., a CBDC-driven economy like the digital yuan).
Develop detailed transition protocols for liability reclassification.
Engage policymakers and economists to stress-test the framework against real-world scenarios (e.g., recessions, inflation shocks).
This proposal has the potential to redefine money as a public good rather than a private profit engine.
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