People’s QE goes mainstream

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Labour leadership candidate Jeremy Corbyn has sparked a major debate about monetary and economic policy by calling for what he calls a ‘People’s QE’.

He argues that ‘The Bank of England must be given a new mandate to upgrade our economy to invest in new large scale housing, energy, transport’. People’s QE is similar to proposals called for by Positive Money. We call the idea ‘Sovereign Money’. Ideas in a similar vein have been advocated or at least suggested by notable economists including J M Keynes (1), Milton Friedman (2), Ben Bernanke (3), William Buiter (4) and Martin Wolf (5).  Most recently, Lord Adair Turner (6) has proposed similar ideas, highlighting that ‘there are no technical reasons to reject this option’.

Like Quantitative Easing (QE), Sovereign Money relies on the Bank of England creating money and putting this money into the economy. But whereas QE relied on flooding financial markets and hoping that some of this money would ‘trickle down’ to the real economy, Sovereign Money works by injecting new money directly into the real economy, via government spending, tax cuts or rebates.

Sovereign Money (or People’s QE) tackles the current government’s flawed growth strategy, which is to grow the economy through ever rising household debt. As former FSA chairman Lord Turner put it, this is a “hair of the dog” strategy (7) for economic recovery, treating the cause of the financial crisis – excessive borrowing – as though it could also be the solution. The Office for Budget Responsibility predicts household debt to income ratio surpassing pre crisis levels by 2019 (8).

The pivotal advantage of Sovereign Money is that it requires no increase in either household debt or Government debt. In fact, Sovereign Money can actually reduce the overall levels of household debt. This deleveraging would also make banks more liquid and the economy fundamentally safer.

A common concern with Sovereign Money is that cooperation between the fiscal and monetary authorities is seen as a ‘taboo’ and that it would undermine the Bank of England’s independence. However this argument fails to acknowledge that fiscal and monetary cooperation has already been carried out by recent policies including:  Funding for Lending, Help to Buy, and Quantitative Easing. The difference with Sovereign Money is that the monetary and fiscal cooperation will have to be more explicit.

Another strong concern is that it will lead to the power to create money being excessively used, resulting in high levels of inflation. A strong governance structure is vital, whilst there are several ways to structure the process, Positive Money advocates the Monetary Policy Committee (who decide how much money to create), is separated from the decision of how to spend the money (the government). The simplest way to ensure that the central bank does not create too much money is for monetary policy to continue targeting inflation (on its own or as part of a broader set of targets).

In addition, there is no reason why it should be more inflationary than the creation of money by bank lending (which typically creates inflation in the housing market).  Whereas most money created via bank lending goes into the property market, the money created via Sovereign Money creation would go directly into the veins of the real economy, boosting GDP and employment.  By boosting the capacity of the economy, Sovereign Money should actually be less inflationary than further consumer lending, and the use of Sovereign Money can be restricted should it start to become inflationary.



1) Keynes, J. M. (1933). An Open Letter to President Roosevelt. New York Times

2) Friedman, M. (1948). A monetary and fiscal framework for economic stability. The American Economic Review, 38(3), 245-264

3) Bernanke, B. S. (2003). Some thoughts on monetary policy in Japan. Speech before the Japan Society of Monetary Economics, 31 May, Tokyo, Japan

4) Buiter, W. H. (2003). Helicopter money: irredeemable fiat money and the liquidity trap (No. w10163). National Bureau of Economic Research

5) Wolf, M. (2013). The case for helicopter money. Financial Times. 12th February 2013






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  • Robert Searle

    Yes, it is very refreshing indeed that Jeremy Corbyn is willing to make the People’s QE a reality if he ever became PM. Ofcourse, it stands to reason if sufficient amounts (monitored by conventional Indicators) of new non-repayable money are created directly into the Economy it could help many people………But this is only the BEGINNING. What needs to happen next is the introduction of super flexible electronic controls over inflation to really ensure that future amounts on new money could be gradually phased in safely, and successfully. For that to occur, we would need to understand the Economy in Real-Time. With the arrival of Big Data, and Supercomputers/Quantum Computing such a proposal could become increasingly likely, and credible. It would if it succeeds be a massive leap in human evolution. See my evolving project

  • RJ

    “The pivotal advantage of Sovereign Money is that it requires no increase in either household debt or Government debt”

    What you mean is it will not increase outstanding Govt bonds. But the UK Govt will still record a liability.

    The Govt will

    DEBIT Expenditure
    CREDIT BoE Account (rather than the Bond account)

    I’m sure the BoE Account balance will still be classified as debt in the Govt accounts.

    • jamesmurraylaw


      You say here, and in other posts, that you are sure that the BoE account balance will appear as debt [to be added to the National Debt] in the Government Accounts.

      PM does not agree, but it would probably benefit you to make a trip to
      where the PM proposals are laid out, and where your observation on the double-entry aspects of Sovereign Money Creation are dealt with, to my mind quite clearly.
      Quite frankly, I would welcome a constructive criticism of the PM proposals from a sceptical person like yourself to se where they may have got it wrong, if at all.

      • RJ

        Thanks James. i have read all of this. If PM don’t agree with me it should be simple to give an answer and explain it clearly. Where is this credit entry going to

        But rather I’m pointed to these sections and I can not find the answer. the only economists who do provide very clear answers on all of this are MMT. Others economists or money reform sites seem lost.

  • Liam

    Aren’t Positive Money’s and Mr. Corbyn’s proposals different? As I understand it, Positive Money advocates the issuing of new currency by the central bank, whilst at the same time removing from commercial banks the power to create new money when they make loans. The second part of this is key. I have seen nothing amongst Corbyn’s proposals that suggest that he will do this.

    If Corbyn’s bank were to engage in any sort of QE, regardless of where in the economy it is injected, the extent to which this could be done would be limited, because the central bank would still have a responsibility for keeping inflation at the target rate (currently 2 %). The only way the government could achieve greater spending without causing more inflation would be to increase taxes, and there’s only so much you can tax your populace.

    If you want to ensure the optimum amount of money in circulation for the full productive capacity of the country to be realised (i.e. to have everyone in meaningful, socially-useful work), then surely the best way to achieve this is to give one body responsibility for ensuring this. The banks must make a return for shareholders – that’s not a criticism, that is just the reality of a limited company. This means that they aren’t concerned with what is the optimum circulating money supply, so they are not best-placed to be deciding how much money is in circulation, as they do now. A central bank under the control and scrutiny of parliament (but not the ruling government), would in theory be a far better custodian of this responsibility.

    I may have this wrong, but it seems like Corbyn is on the right path, but risks damaging the prospects of real monetary system reform in this country.

  • Diamond Steve

    You state that the MPC should control how much money to create, but surely this should be a government decision. The more new money is created through PQE, the more interest rates would have to rise to stem any inflationary effects (a neat way of stopping banks printing money!), so there will be a political balance to be struck between how much public and how much private investment there should be in the economy. The MPC could perhaps advise government of the consequences for interest rates should they be instructed to create a certain amount of money, and retain the power to set those rates to control inflation, but to have them decide how much to create seems to me like the tail wagging the dog. Am I missing something?

  • lucille

    Liam stated my concern exactly: “Aren’t Positive Money’s and Mr. Corbyn’s proposals different? As I understand it, Positive Money advocates the issuing of new currency by the central bank, whilst at the same time removing from commercial banks the power to create new money when they make loans. The second part of this is key.”

    In other words, without ending fractional reserve banking–bank’s legalized “power to create new money when they make loans”–at the same time as implementing the “People’s QE” (aka “Sovereign Money”), the proposal will fuel and fan our debt-based political economy as it is, before long becoming inflationary (as banks create new money as a multiple of new PQE money) and making economic matters more socially inequitable and environmentally destructive.

  • Fran Griffiths

    It is very important that the purely technical decision about how much money should be created to meet the government’s inflation and employment targets, should not be in the direct day to day control of the government.They might well be tempted to create more money than the economy required in order to influence an election result. Under the Positive Money proposals, it would not be interest rates that would be used to reduce the money supply, it would be taxation. One of the disadvantages of our present money system is that the only way to control the money supply is to raise or lower interest rates and this is a relatively ineffective way of doing it.

    I also think it is a pity that Jeremy Corbyn seems to be talking about government creating money in addition to commercial bank created money, rather than instead of it, as proposed by PM. Actually this is probably a good thing as the whole money reform idea would be a lot for the public to take in all at once – judging from some of the adverse reactions to what he did say. :-)

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