Why Positive Money doesn’t see any problem in interest

Quite often we get asked this kind of question:

“You don’t see any problem in interest?”

“Why do Positive Money focus solely on the way money is created. Surely the application of interest deserves attention also – it’s just as destructive to the system as a whole ?!”

Positive Money advocates debt-free money creation – which means also interest-free money creation. But we do not advocate abolishment of interest, nor interest-free loans. Interest would still exist in the Positive Money system.

When we speak about interest, it’s crucial to distinguish between:

1) interest charged on newly created money by the banks (out of thin air)

2) interest charged on existing money

The consequence of the “1st type of interest” is the systematic transfer of wealth to the banks from the rest of us, exacerbating inequality. (More here)

Regarding the “2nd type of interest”- this interest is charged on money that somebody had to give up access to and take a risk of not being repaid. This is a simple price of money.

In the Positive Money system banks will still charge and receive interest on loans. However, unlike in the current system, they would have to compete and acquire the funds from investors first in order to be able to lend. Therefore they would have to share a fair part of interest revenues with the investors.

When we hear the word ‘investor’, we probably imagine some wealthy people, not ourselves. But although it might be difficult to imagine today, the Positive Money system enables the situation when the ordinary people will be investors.

We need to remember, that while in the current system the majority of the population and businesses are ‘in debt’, after Positive Money reforms our disposable income will gradually increase. (More about it here)

It means that it will become more and more usual and normal that the ordinary people will have more savings. And we will want to invest some part of our savings – perhaps in businesses and projects we will want to support, e.g. renewable energy projects etc. If we decide to invest in riskier projects, we may get higher interest, but we might also lose more. Risk and reward will be re-aligned – so that those who will stand to gain from the upside of risky investments will also stand to take the downside. There would be no government guarantees anymore, so we’ll also pay more attention to where we invest our money and many of us might opt for lower-risk / lower-interest investments.