This report presents a reform to the banking system that would remove the ability of banks to create money, in the form of bank deposits, when they make loans. It would transfer the ability to create new money exclusively to the state, creating what we have termed a ‘sovereign money’ system.
It is based on the proposals outlined in Modernising Money (2013) by Andrew Jackson and Ben Dyson, which in turn builds on the work of Irving Fisher in the 1930s, James Robertson and Joseph Huber in Creating New Money (2000).
Taking the power to create money out of the hands of banks would end the instability and boom-and-bust cycles that are caused when banks create too much money in a short period of time. It would also ensure that banks could be allowed to fail without bailouts from taxpayers. It would ensure that newly created money is spent into the real economy, so that it can reduce the overall debt burden of the public, rather than being lent into existence as happens currently.
- Executive Summary
- 1: Understanding the Current Monetary System
- 2: Consequences of the Current Monetary System, and Sovereign Money as a Solution
- 3: Changes to Payments and Lending in a Sovereign Money System
- 4: The Monetary Policy Framework in a Sovereign Money System
- 5: Transition
- 6: Responses to Common Critiques
- Appendix: Balance sheets pre- and post-transition
(This paper replaces and significantly revises Creating a Sovereign Money System, which was published in 2013 and revised in 2014.)