Monetary reform

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Monetary Reform describes any movement or theory that proposes a different system of money and finance.

Contents

[edit] Common targets for reform

Of all the aspects of monetary policy certain topics reoccur as targets for reform:

[edit] Fractional Reserve Banking

Fractional Reserve Banking is the system whereby a bank may lend money in circumstances where it has the obligation to return this money to depositors/savers immediately at call; through this accelerated scheme of money creation, it is able to multiply the amount of deposits/capital the banking system has by a factor determined by law. The resultant loan consists only of a fraction of what the bank has in reserve for immediate payment to its clients/depositors. When what was perhaps an illegitimate practice by goldsmiths (akin to embezzlement) became enshrined in law, the total amount of money supply started expanding rapidly, and is still expanding exponentially today.

[edit] Money no longer represents any asset of value. It represents debt (or intangible obligation)

Because banks now primarily create money through fractional-reserve banking, money no longer is backed by a tangible asset; it does not represent anything other the debt of another; the only "tangible" aspect of the system is the borrower’s promise to pay. Debt then becomes the underlying currency.

[edit] Governments do not supply money. Private banks do, for profit

Many people criticize the fact that governments pay interest for the use of their own money.[1][2] This leaves the state of a nation's economy susceptible to the interests of private bankers who create the money solely for the purpose of creating ongoing profits for their employees and shareholders, without any other binding social or legal obligations to the broader community that are normally expected from government entities.

Prominent economists criticise existing global financial institutions like the World Bank and International Monetary Fund and their policies regarding money supply, banks and debt in developing nations.[citation needed]

[edit] Alternative money systems

Some countries have created a currency board, or granted independence to their central bank; the Bank of England, for example. This may enable the setting of interest rates to be less susceptible to political interference and thereby assist in combating inflation (or debasement of the currency), but many suggest that more radical monetary reform can assist in facilitating positive economic or social change. Although central banks may appear to control inflation, through periodic bank rescues and other means, they may inadvertently be forced to debase the currency to save the banking system from bankruptcy or collapse during periodic bank runs.

Theorists such as Robert Mundell see a role for global monetary reform as part of a system of global institutions alongside the United Nations to provide global ecological management and move towards world peace.[citation needed] Henry Liu of the Asia Times Online argues that monetary reform is an important part of a move towards post-autistic economics.[citation needed]

While most mainstream economists favour monetary reforms to reduce inflation and currency risk and to increase efficiency in the allocation of financial capital, the idea of all-encompassing reform for green or peace objectives is typically espoused by those on the left-wing of the subject and those associated with the anti-globalization movement.

Still other radical reform proposals (with utopian objectives) emphasise monetary, tax and capital budget reform which empowers government to direct its economy toward solutions to economic problems markets do not solve. In particular a number of monetary reformers, such as Stephen Zarlenga support the restriction or banning of fractional-reserve banking and the replacement of fractional-reserve banking with government-issued debt-free fiat currency issued directly from the Treasury rather than from the quasi-government Federal Reserve.

[edit] Government issued money.

Some Governments have experimented in the past with government-created money independent of a bank. The American Colonies used the "Colonial Scrip" system prior to the Revolution, much to the praise of Benjamin Franklin. He believed it was the efforts of English bankers to revoke this government-issued money that caused the Revolution.[citation needed] Abraham Lincoln used interest-free money created by the government to help the Union win the American Civil War.[3] He called these 'Greenbacks' "the greatest blessing the people of this republic ever had."[4][5]

The islands of Guernsey and Jersey in the Channel Islands create their own money, the Guernsey pound and Jersey pound, to supplement the British Pound and the Scottish pound.

In America and Britain, however, government-issued money has never been able to gain enough momentum to become an established institution because of the large degree of influence that private bankers have in governments.[6]

Binary economics proposes that central banks issue interest-free loans to the government and for public projects or private capital. They would be administered by the banking system for the spreading of productive capacity and consuming capacity, on market principles, throughout the population.

[edit] Local barter, local currency

Some go further and suggest that wholesale reform of money and currency, based on ideas from green economics or Natural Capitalism, would be beneficial. These include the ideas of soft currency, barter and the local service economy.

Local currency systems can operate within small communities, outside of government systems, and use specially printed notes or tokens called scrips for exchange. Barter takes this further by swapping goods and services directly; a compromise being the Local Exchange Trading Systems (LETS) scheme: a formalised system of Community-based economics that records members’ mutual credit in a central location.

[edit] Micro credit

Banks offering small loans on simple interest, not compound interest, can make a difference to small-scale business people trying to make a start without collateral. The Grameen Bank instituted this technique and remains popular and influential.

[edit] Return to the gold standard

A move away from credit money towards representative money would mean tying currency to a fixed commodity such as gold, silver or both. Digital means are also now possible.

[edit] References

  1. ^ For an example of the public criticism of the current monetary system, see the speech of the Earl of Caithness in the House of Lords on 5 March 1997
  2. ^ Other examples of such critics include Christian monetary reform groups such as the Bible Believers, Austrian Economists such as Murray Rothbard, and other monetary reformers such as Antal E Fekete, Stephen Zarlenga, Ellen Hodgson Brown and Michael Rowbotham
  3. ^ The Forgotten War
  4. ^ Source of quote discussed here
  5. ^ Quoted in the Michael Journal here
  6. ^ The Forgotten War

[edit] See also

[edit] External links

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