Cash is disappearing. It is being replaced by electronic money which is just numbers in computers and other electronic devices. The joke is that electronic money is not legal tender. The law has been left behind by technology and up to now the politicians have omitted to extend the government’s monopoly of money to electronic money. That is no accident because the banks profit enormously from this legal loophole.
“Legal loophole” is actually not the right expression since the “loophole” is being filled in by evermore complex regulations. This way governments have been trying to compensate for the fact that electronic money is outside their monopoly on issuing money. These regulations consist of the fractional reserve system, deposit insurance and equity rules (Basel I-III). Instead of establishing a transparent, well ordered system governments are attempting to straighten out the existing bad system with a multitude of rules. The results have been modest.
Now, only cash is legal tender for all of us except banks. In contrast, electronic money is only a substitute for money, a legal promise to pay the bank customers cash on demand. If bank customers deposit cash in their accounts they exchange legal tender for private substitute money. In other words, they lend their money to the banks and their money becomes the possession of the banks. The credit to their accounts is nothing else than a confirmation by the banks that they owe the customers that amount of money. So there is a fundamental legal difference between electronic money and cash.
It is clear from this background that the replacement of cash by electronic money is not simply a question of technical development. Ninety percent of the money circulating in the economy is electronic. (Note: 90% is the figure for EU, in UK it’s 97%) This undermines private property and therefore our individual autonomy. It also undermines democracy, our collective autonomy. Electronic money gives the banks power over our private and government finances. The banks are simply the owners of our money and hence control us to a large extent. The keyword is “too big to fail“. These are dangerous plutocratic tendencies.
This is exactly what the sovereign money concept wants to change. We want electronic money to be declared legal tender and remain in the possession of the bank customers. Thus a sovereign money reform would strengthen private property. We also want the central bank to have the exclusive power to issue electronic money as it has the monopoly over the issuance of cash today. This way the monetary system could serve democracy and the common good with the possibility of reducing national debt and financing the social safety net.