We Used to Have Debt-Free Money

A Drop from 46% to 2.6% 

The proportion of money created free of debt dropped from 46% to less than 3% since 1946.

Over past months I have been writing of a need for the economy to be firmly based upon debt free money instead of the present high dependency upon debt creation now exceeding 97%.

The most telling statement I have read in the past few days was “In Britain today, out of a total money supply of £2,165 billion (March 2011), £57 billion is not based upon debt.” This amounts to 2.6% of the total.

In 1946, the notes and coins, the debt free element within the money supply was 46% of the total”.

This dramatic increase in debt creation of 43% over the past 65 years can be readily explained by the fact that paying with hard cash has fallen out of favour and replaced by an increasing use of cheques and more recently credit cards.

The less cash in use, the less hard cash the banks needed to buy from the Bank of England at full value, which formed part of a bank’s capital base. This means that a large proportion of a bank’s capital is no longer rooted in the holding of real money, namely the metal coins and currency notes of the realm.

Because the use of cash has been largely replaced by cheques and credit cards, there it is necessary for the wide balance between bank created debt and debt free money to be restored. This would be achieved by the Bank of England not only having responsibility for the creation of currency notes and coins, but by being able to also create a debt free money supply.

This debt free money would enter the money supply through the Bank of England drip feeding money into the Government’s bank account in a controlled way thereby maintaining an overall economic balance between debt and permanent money.

Daily financial newspaper headlines make it imperative for Government Ministers to urgently face up to the facts and have the courage to make the desperately needed economic changes.

Up to now Governments around the world have appeared like headless chickens!