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While all the TV news cameras point at politicians in Westminster, the power to create money gives the banking sector more power than government. Here’s why it’s undemocratic to allow banks to create the nation’s money:

1. We’ve given the power to create money to the banks, with no accountability

Banks create money when they make loans, which means that they effectively control where newly created money goes to in the economy. That means banks have the power to shape the economy.

They’ve used this power to push up house prices, inflate speculative financial bubbles, and starve small businesses of investment. They have no legal obligation to use this massive power in the interests of society as a whole, and we have no way of holding them accountable when they use it badly.

2. This power to create money is concentrated with just a few people at the top of the biggest banks

Today, approximately 85% of the UK’s money exists on the books of just five banks. These five banks are controlled by just 78 board members, who take the key decisions about how much money is created, and what that money is used for.

This is a huge amount of power concentrated in very few hands, with next to no transparency or accountability to wider society. Instead, the people that run banks are primarily concerned with increasing the profitability of the bank, by increasing their lending (and therefore the amount of money they create) as quickly as possible.

It’s dangerous and undemocratic to leave this much power in the hands of people who have no accountability to society – the financial crisis has shown how severe the consequences of doing this can be.

3. Banks have more ‘spending power’ than the government

In the 5 years running up to the start of the financial crisis, the total amount of loans approved by the banks came to a total of £2.9 trillion. Over that same period, the government spent a total of £2.1 trillion. So when banks are able to create money when they make loans, they can end up with more ‘spending power’ to shape the economy than the whole of our elected government.1

Proportional Money Creation

4. There was never any democratic decision to give banks the power to create money

When the government talks about privatising parts of the health service, there is a huge public debate and arguments on all sides. But there has never been a debate or vote in parliament to give the banks the power to create money. In fact, the opposite has happened: in 1844 parliament voted to stop banks creating paper moneybut that law left out bank deposits. Today 97% of all money is made up of bank deposits (i.e. electronic money). Most MPs are unaware that the power to create money has shifted to the banks.

The power to create money affects almost every aspect of our society, so it’s worrying that we’ve allowed it to fall into the hands of banks with no debate in parliament or the press.


1. Source: Bank of England Statistical Database

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  • Rationality

    I’ve got an idea. Let’s give the power to create money to a select group within an appointed government board the power to “create money”. That way, we could have a small group of untested populists making decisions about everyone’s finances instead of a group of time tested bankers that will lose the shirts that they EARNED if they make the wrong investment. Get real. The problem is not the lending, it is the repayment. Let banks and their investors lose their money if it is invesed poorly, and suddenly you’ll find they get a lot more cautious about how they lend it out. No more bail outs from the public by printing more currency or having a government take on debt that it knows it cannot possibly repay.



    • Tertius Wehmeyer

      You clearly have not read the Bank of England documents and don’t understand how money is created in the modern economy. And then we also have clear examples of bankers not loosing their shirts in the sub-prime housing crisis of 2008. The bankers in the USA got bailed out by the government. I do not agree with all Positive Money’s ideas. There is a place for state banks to do exactly what banks do to invest in public infrastructure which benefits the whole country. But that will not cover the needs of businesses and households, you can’t eat public infrastructure or live in it. So banks should under strict supervision and according to definite clear guidelines use the fractional reserve system to provide loans to businesses and households. The central bank should be fully goverment owned and they should be part of a system which keep track of what loans banks create as accounting entries by banks borrowing from the central bank in the same manner. As debtors pay banks bank, they should pay the reserve bank back. That way the reserve bank will know each month how much bank’s owe and how much is paid back to banks by their debtors each month.

      What most people don’t realise is that banks are basically accounting systems. They keep account of who owes what to whom.

  • Adamsmith

    Money is a commodity; financial services is trade in a commodity; the only way to make big profits is to create a monopoly. Is this what we are defending? Too big to fail or too big to permit?

    • Howard

      If we want money to be a good medium of exchange it must not be a good commodity.

  • Ian Flaming

    I think you are presenting an over-simplification of electronic money. What actually happens is that banks invest a proportion of the money deposited in customer accounts into stocks & shares. Any profits from doing this are thus available as capital for new loans, writing off bad debts or adding to (the bank’s) capital reserves. Ideally, banks act responsibly and maintain a proper level of reserve capital for contingencies, such as a slump in the housing market causing massive negative equity and defaulting on loans. If banks act irresponsibly however, say by allowing capital reserves to fall to dangerously low levels while claiming to be in ‘operating profit’ and paying out huge bonuses to staff and fat dividends to shareholders – well, that’s a recession in the making right there.

    • Tertius Wehmeyer

      Read the Bank of England documents. When they loan money, banks do not use their own reserves or the deposits of their customers. They might use long term savings accounts for investment purposes but if they invest that, they don’t have money to loan out to customers as those deposits are tied up in a more secure investments where they get a higher interest. The risk of using a customer’s deposit to make a mortage loan is to high. If a customer invests in a long term savings account of say 5 years, the bank will rather take out a government security which gives fixed interest. They will take some of that interest for themselves and pay the rest to the customer when the investment matures. It is a much bigger risk to make a mortage loan with that money which might involve the long-term savings investment of a number of customers. Have you noticed that banks sell or did sell repossed houses at auctions at a fraction of what the buyer paid for it. How on earth can they afford to do that? One would imagine that they would keep the house and rent it out until they can find a buyer who is willling to pay the market related price. They don’t do this because they don’t need to.

      The banks really create a book keeping entry. The bank of England states it is an IOU. So when you go to to the bank for a mortage loan, you sign an agreement which is your IOU to the bank. The bank then makes a book keeping entry in your account when they “deposit” the money into your account. You then transfer this money electronically to the bank of the seller where it is deposited in the seller’s account. As you have signed an IOU to the bank, you then need to pay your loan back monthly. Your payment to the bank is a deferred payment. The money transferred from your bank to the seller is an immediate payment as he/she can use it immediately to buy another house or make another investment.

      This is what is called fractional reserve banking. In the UK’s banking laws it probably somewhere stipulate that bank’s are allowed to make aggregagte loans of up to 800% of their reserves. But the Bank of England documents really explains it well. This is based on the Credit Theory of Money. The big issue I have with the system is the interest that is charged. Because basically the bank is only doing accounting. Why should they get any interest for doing something any accountant can do?


    Please! why does everyone refuse to see the wood in the trees?

    There is one, and only one, main cause of all our economic woes.
    During the 1900’s our stupid/corrupt politicians signed away the
    Sovereign “rights” , that allowed us to print and issue our own
    interest free, debt free money; and since then we have all become
    “debt slaves”. Our rights to print and issue our own money out of
    thin air were ceded to private banking Corporations, thus now, we
    borrow all our money from them, and they simply print it out of thin
    air, and charge us interest for the privilege. Given the nature of
    our economic cycles, the booms and busts, it is virtually impossible
    for us ever to repay all such debts, especially since, when they
    print our borrowings, they do not also print the money to cover the
    interest repayments; this simple leverage constantly acts to keep us
    all “in debt”.

    These economic consequences were recorded centuries ago in the well
    known fable about the man who possessed a goose that laid “golden”
    eggs; he sold the goose for a paltry sum and forever thereafter he
    was destitute.

    The remedy for our problems is simple; we abrogate any agreement
    previously made, reclaim our Sovereign “rights” to print and issue
    our own debt free interest free money. This simple remedy would
    permit the whole World to eliminate poverty, without taxing the
    rich, and at the same time add a continuously recurring means of
    sharing the Earth’s natural abundance, a share that all humans have
    a right to expect. Money will act as “the rationing device” for this
    purpose, allowing the rich to go about their greedy acquisitional
    processes; leaving Government to impose sensible, rational,
    restrictions to limit the size of great personal or Corporate
    fortunes, thus maintaining the necessary control of total money in

    This will enable us to stop income-taxing of individuals; we may pay
    everyone that needs it a social wage, based on a break even
    computation, this will eliminate poverty and deprivation; those in
    receipt of the Social wage will be encouraged into employment,
    without loss of this Social wage, and to work for any employer for
    additional income, mutually agreed between them. This gives control
    of work and income to the “workman”. Employers will gain a workforce
    of people willing to accept much lower wages than previously paid,
    thus making the employer production costs significantly lower; plus,
    the employer no longer collects taxes for the Government. The
    employer Corporation/business will pay tax annually as usual. The
    collection of V.A.T. or G.S.T., consumer taxes will cease.

    All Government expenditures will be provided by the planned issue of
    our own debt free interest free money using legislation and budgets
    approved by Parliament. Health, Education, University courses,
    Infrastructure of all kinds, etc. etc. None of this is “rocket”
    science; we would simply be using the functions of money for the
    benefit of everyone, instead of only for a privileged few. The free
    enterprise system stays intact, unaltered.

    Provided that all of these expenditures are actually “spent” into
    circulation they will not create inflation; inflation will occur,
    for instance, when too much money chases too few “goods”, perhaps
    when engineered through “Market Manipulations” when Government
    oversight and adjustment become necessary.

    The Government must own and run it’s own Public Bank, just like the
    original Commonwealth Bank of Australia or the State Bank of North
    Dakota, which decided not to sell out or “privatise”. No Private
    Bank or Corporation will be permitted to create money, under any
    guise; our financial system will revert to one of “sound ” money.
    Sound money is that which turns around sound borrowing, lending
    saving and investment, controlled by being liquid cash, backed by
    the ownership of assets, keeping them in balance; borrowing and
    lending outside of these criteria, characterised as “high risk”,
    will be permitted between parties willing to accept such risk, and
    then, only when it involves their own wholly owned assets.

    Interest rates in the private sector will be set by the private
    sector Banks in competition. The floating exchange rate will be
    converted into “fixed” rates decided by Government, and as decided
    between Sovereign Nations and embodied in trade agreements. Our
    currency will not be traded on “Exchanges”, our Nation will be
    immunised against the manipulated predations of the “Market”.

    The foregoing explains the broad brush strokes involved, but in
    summary we would have a Nation with little or no foreign debt, a
    Nation whose domestic economy sits on a solid unshakeable base, a
    Nation better able to compete in the wider World, a Nation without
    poverty whose peoples are empowered to think and work for themselves
    without having to worry about how they will feed themselves, a
    Nation rescued from the avarice of the “Money Lenders”, and above
    all, a Government able to be free and Independent, instead of being
    owned by Corporate and “private” money influence. This is named
    “The Universal Economy” because it will operate anywhere for the
    benefit of everyone.

    For those who doubt the efficacy of this proposal, I suggest they
    study the United States example. The clever banking Corporations
    engineered the U.S. dollar to be the Worlds reserve currency. Ever
    since the U.S. has been printing money out of thin air, now they
    have military bases spread throughout the World, their dominance and
    control of Banking and trade organisations allows them to place
    whole Nations under siege, for that is what “sanctions” do, just
    like in mediaeval times. They have engineered the removal of
    democratically elected Governments and “regimes” not willing to
    follow the U.S. directives. They have made War against countless
    Nations using propaganda and outright lies and falsifications. In
    recent years they have printed trillions of dollars, called
    quantitative easing, and poured it into foreign banks and financial
    Institutions trying to prevent the next
    economic meltdown; but it is not working because their printed money
    was not
    ” spent” directly into circulation, instead it was used to inflate
    the prices of shares, commodity markets, real estate and the huge
    “derivatives” scams; the bust cometh.

    • Howard

      Good job, Thomas! You are among the few of us hacking at the root while the many hack at branches. The cognitive dissonance is deafening.

  • Tertius Wehmeyer

    The current flawed financial system has it’s origins in a flawed political system. The system of Representative democracy is easily manipulated by the rich and powerful. They own the media which makes public opinion which then votes according to what they have been told in the media. And then they, the rich and powerful, have all the funds and resources to ensure that public legislation is implemented according to their desires. How was the current banking laws created? By the banking fraternity using all their power, resources and funds to ensure that they get the legislation that will empower and enrich them even more. I am not implying that they bribe politicians but by controlling the media and research funding they ensure that main stream economist and universities promote their interest. And the representative politicians also benefit handsomely by following the orders of their masters. Look at Tony Blair. His government pension should be enough to ensure an easy retirement. But no, this war criminal is running all over the Middle East to promote “peace” and get handsomely rewarded for furthering the interest of those who funds his activities. What is needed is a system of Direct Democracy where the voting public has the final say on government projects or legislation. The government is not our parents which we must obey no matter what they say. They are neither our servants. We should regard those in government as colleagues who have as much say and rights as everyone else. They are just people assigned by the community to do a specific job for a specific time. They should in that regard be guided by the community in what they do and if they do not like it, do something else. Of course, a system of direct democracy needs to be designed so that bickering and blocking tactics cannot forever stall activities which the majority of the community wants. And layers of suburban, municipal, regional and national spheres should be clearly identified to ensure that local communities have as much freedom to implement systems they are happy with but still coordinate the local systems with regional and national systems. A lot of thinking and engagement of as many people as possible should go into the design and implementation of a system of Direct Democracy. But that is the key focus area. If Positive Money’s guidelines are implemented under the current political system, and the banks do not like that system, they will manipulate the new system into one that again advances their interests. The financial system cannot be permanently changed without improving the political system by phasing in more and more Direct Democratic principles and systems from grassroots level.

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