There is no reason why lending should be more restricted in the new system.
If there is a lack of credit for businesses banks will be able to borrow from the Bank of England to on lend into the economy. This could be through standing facilities at the Bank of England (i.e. overdrafts). So there need not ever be a lack of credit. Money creation in the Positive Money system could, if desired, be completely endogenous (i.e. responsive to demand for loans), although this might be dangerous. Business lending could become endogenous if required, with money being created whenever a business loan is made, but speculative and non-productive lending could not (since that is the same system as we have now). Alternatively, regional investment banks could be set up to lend to businesses with the Bank of England deciding how much money would be created (but not who gets it).
During the Transition Process from the current system to the reformed system the Bank of England will need to ensure there is enough money in the economy. Our proposed ‘Transitionary Lending Scheme’ is to ensure enough money is available to lend during this process. This finance will be on-lent by the commercial banks and will work to smooth out any changes in the availability of credit from the banks during the period of the transition. If the government is concerned that there isn’t enough lending occurring post transition, they can continue to use the ‘Lending Scheme’ to target business lending.
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Posted in: 3. The Positive Money proposals