‘QE for the people’ can happen without compromising Bank of England independence

Positive Money is rejecting claims that ‘people’s QE’ would represent an end of the independence of the Bank of England.

We propose a version of people’s QE called ‘Sovereign Money creation’, which unlike the model advanced by Labour leadership contender Jeremy Corbyn, would not change the existing mandate and targeting of the Bank of England’s Monetary Policy Committee.

Our proposal for Sovereign Money Creation is a smart innovation which could strengthen, not undermine the independence of the UK’s central bank. This isn’t about interfering with Bank policy, it’s about giving it the tools it needs to do its job of targeting inflation and maintaining financial stability. Under the current system, the Bank’s only way of influencing prices is via unsustainable money creation by commercial banks. This results in a build-up of household debt, which can only grow faster than salaries for so long before it becomes excessive and unaffordable.

Under “Sovereign Money” proposal, money created by the Bank of England could be used to finance an increase in public spending, a reduction in taxes or a “citizens’ dividend”. The decision about how much money to create would remain in the hands of the Bank’s Monetary Policy Committee, as it is now. Through Sovereign Money creation, the Bank could support a productive and stable economy.

A common concern with Sovereign Money is that it would blur the boundaries between fiscal and monetary authorities. However 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.

Find out more on Sovereign Money proposal, including why it would not be inflationary or increase debt here.