Wouldn’t allowing the state to create new money be inflationary?

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Between 1983 and 2009, lending by the banks increased the money supply by an average of 12.5% a year. Much of this newly created money went into mortgages, causing huge inflation in house prices and making housing unaffordable. So the current system, where banks can create money, is already very inflationary.

The Bank of England currently tries to control the amount of money being lent into the economy by manipulating interest rates, which is ineffective. In a sovereign money system the Bank of England would have direct  control over the amount of money entering the system directly and therefore would be able to control inflation much more effectively than at present.

Positive Money proposes that the decision between how much money  is created and where the money goes is strictly separated, specifically to avoid situations where the government create too much money – for example in order to boost the economy before an election – which could lead to inflation. For more details see here.

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