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Setting the record straight: Sovereign Money is not Full-Reserve Banking

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The German Bundesbank has recently released an interesting report on the role of banks, non-banks, and the central bank in the money creation process. We have a few issues with the Bundesbank article; however, the majority of the analysis is good. More importantly, the conclusions drawn from the report by news outlets and the blogosphere are misleading.

HowardPerhaps because supporting sovereign money is the "third rail" of an economists career. Why? Because money is power.Bernhard Lietaer asked Paul Krugman, “Why, with all your influence, don’t you tell people how the money system works?Paul replied, “Didn’t they warn you about not touching the ...

2 weeks ago

HowardSo much of the new money created today goes into speculation instead of the real economy. If new money created by government was spent, lent or gifted into the economy for things people really need and use wouldn't there be little concern about inflation? Inflation occurs due to money going to thin...

2 weeks ago

Lucian AerisIt looks like the report is only in German, but from the summary it seems that the Bundesbank's economists think FRB wouldn't necessarily provide more stability than better regulations. It appears to me that this is an attempt by the Bundesbank to gently nudge the debate away from the proposal to re...

3 weeks ago
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Jim MI read the paper and am not much the wiser for it. There is a lot of talk about how modern banking works and a small section at the end on sovereign money but no real comparison to full reserve. Having read Andy's books and now this paper it would appear that both are very similar systems with the m...

December 2016

PJMJim, the Sovereign Money proposal outlined in this paper is not a "full reserve" system. Rather, it is a "no reserve" system. Here is the URL for a paper by Prof. Joseph Huber, who is perhaps the world's leading expert on Sovereign Money, explaining the difference:http://www.sovereignmoney.e...Prof....

December 2016

Jim MAndy Anderson's books "currency" and "moving On" both go into this is good detail. They show how a full reserve currency in a state controlled bank could create full employment as it did in the past, before fractional banking and the tories took charge giving the banks free reign to print money....

December 2016
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Gregory Schoenmakers@Simon Bazley, banks offer you a claim on their reserves when they loan you money.You might say this is an unstable system or even fraudulent since banks don't have sufficient reserves to pay out all of the claims but you can't call it "no consideration"....

September 2016

Simon BazleyHi James, A couple of points. I disagree that banks create anything. I believe that we, the people, create money. I think that banks actually launder the entire principal into their unwarranted possession when they issue a purported loan. I say purported as no loan actually ever transpires as w...

September 2016

James MurraySimon,You may know that any amount of 'consideration' is sufficient to form a contract.So that if I offer to sell my house to you for a bar of chocolate, then that is quite sufficient to be an enforceable contract. (provided it is writing, signed etc).The point is that the bank may 'create' funds by...

September 2016
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Jonathan Peretz ChanceI'm familiar with economics, finance, banking and history.Unless a currency unit is publicly and scientifically defined (eg: one dollar = one ounce of silver, or one REC = one kWh of renewable energy production, or one Location Value Unit = Qualified Market Demand / One Volumetric Meter x Security R...

November 2016

Nigel WellsDear Jonathan, I suspect you have not really studied the difference between a countries currency issued as a debt (To private banks) and that issued debt free.The cosequences are several and drastic, See Banking 101....

November 2016

Jonathan Peretz ChanceThe differences between governments and corporations are rather superficial. How would "public banking" significantly change anything unless the currency unit is transparently defined as done with Silver Dollars, Renewable Energy Credits and Location Value Tax units?...

September 2016
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Bank of England: Digital Cash – the end of monetary policy as we know it?

bank of england digital currency

Last week the Bank of England released a key paper that analyses the 'macroeconomics of central bank issued digital currencies'. The paper essentially asks what would happen if people could hold money electronically at the central bank, instead of having to use bank deposits (created by commercial banks). We wrote about it briefly last week but we're still working through the fine details of the 69-page mathematical model to figure out the implications for our work. In the meantime, the Bank of England's staff blog has just released a much more accessible discussion of the issues:

WilliamAnd...hard cash in the hand cannot be tracked so readily...

September 2016

WilliamEntirley true...but...'hard cash' in your hand cannot confiscated when convenient...

September 2016

Vince RichardsonOK I ve no objection to that,far as I am aware that is what we all want.It has to be open and honest so everyone can see what is going on and where and how that money is created.Well in simple terms anyhow...

July 2016
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