Positive Money: Reforming the banking sector
1 June 2012 - Impact Hub

On 2nd May 2012 the Hub Islington hosted an event entitled “Is Banking To Blame for Poverty & Debt?”
The talk was given by Ben Dyson, the founder of Positive Money, a not-for-profit organisation formed to raise awareness of the deep flaws in our current monetary system. They have written a guest blog for the Hub…
Our current money system is one that serves the needs of banks, but is extraordinarily harmful for the rest of society, as the last few years have shown.
The good news is that a bit of intelligent redesign of the monetary system could give us a w
ay to deal with the current crisis of debt and unemployment.
The key flaw in our current banking system is that almost all money is now created by private banks as debt. Right now, 97% of money in the UK is in the form of electronic numbers in people’s bank accounts. This digital money is actually very different from the cash in your pocket: unlike the cash, all this digital money is created by the private companies that you and I know as ‘banks’. When someone takes out a loan from a bank, the money that appears in the borrower’s account isn’t taken from anyone else’s account. It’s simply typed into a computer system. Almost all of our electronic money these days was created in this way, out of nothing, by banks. (If you find this hard to believe, see the New Economics Foundation’s book Where Does Money Come From?)
The problem with this system is that if we want more money in the economy, then the only way to get it is to borrow more from the banks. While you personally might be able to rein in your spending and get out of debt, it’s impossible for the public as a whole to pay down our collective debts. We are collectively forced into debt by the fact that we have to borrow all the money we need to run the UK economy from the banks. If we didn’t go into debt, there would be no money and the economy would grind to a halt like a car engine with a serious oil leak.
You can watch this 20 mins video to learn more about what does the current banking system mean for housing, debt, inequality, jobs, businesses and taxes.
We need to fundamentally change the money system if we want to deal with our mountain of personal and household debt. Instead of a licence to electronically ‘print’ money as debt, we need a source of ‘debt-free’ money.
At Hub Islington last month, a room full of people discussed their views on what/how this source of debt-free money should be

Interesting ideas came out of the discussion included:
–       Government
–       Democratically elected
–       Not for profit
–       Accountable/Transparent
–       LETS
–       Free of private interest
–       Subject to law …
Further they discussed how much new money should be created. Here are some of the responses:
–       According to rate of inflation
–       Enough to reflect value being created – connect to real economy (‘bonus’ system)
–       In line with productivity and actual value
–       Something predictive …
Positive Money has spent the last couple of years thinking about how to address the biggest flaws in the banking system, and how to stop banks expanding the money supply recklessly. The ideas in this video are one way to do this. It’s certainly not the only way but it is one of the best options currently on the table and would be a massive improvement over the banking and monetary system we have today.
The money would need to be created by a transparent and accountable organisation that is required to consider the best interests of society as a whole. The money would be created out of nothing, just as banks create money out of nothing. But the difference would be that instead of creating this money and lending it to the public, this democratic body would create money and spend it into the economy. The first way increases the total amount of debt; the second way reduces it, because the newly-created money can be used to pay down the existing debts.

How would we spend this newly-created money?
Again all attendees discussed their opinions and the following ideas were presented:
–       Productive activity
–       Community proposals / decisions (generating responsibility and accountability)
–       Invest in future productivity (education, innovation)
–       Devolve power to community level
–       Green money – mobile phones
–       Infrastructure
–       Tax reduction
–       Not wars! Not environmentally damaging projects!
–       Invest in socially responsible business
These views are very close to the proposals of Positive Money:
One option is infrastructure spending (for example, making the necessary switch to renewable energy before oil prices get out of control). It could be used to cut taxes for the poorest 20% of the population, for example by cutting VAT (which is paid even by pensioners and the unemployed whenever they buy anything in a shop). Alternatively it could just be distributed in equal shares to every adult in the country to spend as see fit.
The important thing is that this debt-free money gets to ordinary people as quickly as possible, so that it can be used to either pay down the existing mountain of debt owed to the banks, or spent on the high-street and in local businesses and create jobs. Compare this to what happens when banks create money, where most of the newly-created money gets ‘trapped’ in the housing market or financial markets (only 8% of bank lending actually goes to businesses; the bulk of the rest is used for mortgage lending – pushing up house prices – or speculation on financial markets).
Of course, we need to make sure that this newly-created money doesn’t start causing inflation (i.e. pushing up prices). But for the last 40 years, the amount of money in the economy has increased by an average of 11.5% a year, because banks have found that the more they lend, the more interest they can collect and the more profits they make. So if we want to control inflation (whether it’s in the price of things in the shops, or house prices) we need to stop banks creating money, and ensure that the public body that takes over from them doesn’t create money at anything like the same rate.
With new money being created debt-free by a publicly-accountable body (instead of being created as debt by unaccountable banks) the new money could be used to pay down existing debts, meaning that we would have a real chance of getting out from under our mountain of personal and household debt. Falling personal debt means that individuals and families have more money left over to spend with real (non-financial) businesses, which would create jobs and reduce the current all-time high level of unemployment.
More jobs means less poverty, and less of the problems that come hand in hand with poverty. And the bonus is that the technical changes needed to prevent banks from creating money also makes them far safer, so that the taxes we pay to government can spent on things we need, rather than on rescuing toxic banks.
Think of it like Quantitative Easing, but for people rather than the financial sector. Some economists and financiers see this as a radical and dangerous idea, but in reality it is the only realistic answer to our current debt crisis. After all, we can’t solve a debt crisis with more debt! Regaining public and democratic control over the creation of money, and taking this power from the banks, is an essential positive step towards dealing with the other challenges that we face today.
To find out more or to join the campaign for a banking system that works for society and not against it, please visit www.positivemoney.org.uk.