[sws_blockquote_endquote align=”left” cite=”” quotestyle=”style01″] How does money come into the world? Not only the European Central Bank is allowed to create money, but also any normal bank. They create their credits from nothing. [/sws_blockquote_endquote]
This is a title of an article in the third biggest German newspaper Frankfurter Allgemeine that explain the process of creation of commercial bank money and also introduces the idea of monetary reform.
And it seems it was the Occupy movement in Europe that managed to break the silence of the media on this issue when it started to ask the question “Where does money come from?”.
The Occupy movement maintains the provocative thesis that it is the banks who do create money in our economic system. “Profit-seeking private institutions that are in no way democratically controlled, are creators of money.” This is dangerous, says Occupy.
Occupy is right, not with the assessment, but with the explanation. It’s the banks that created most of our money. Namely large commercial banks such as the Deutsche Bank and Commerzbank as well as small credit unions and savings banks.
About the growth of money supply are actually deciding banks but also private individuals and companies – depending on how much money they borrow or lend.
But not only in Occupy, even in science there is a debate over whether after the banking crisis experience the money creation can be left to the banks. Ironically, the thesis supervisor of current CEO of Deutsche Bank Josef Ackermann, Hans Christoph Binswanger, is one of the protagonists.
Another German daily newspaper die Tageszeitung published the whole interview with Prof. Joseph Huber – the leading representative of monetary reform initiative in Germany and co-author of the book Creating new money.
(Positive Money proposals are heavily based on Joseph Huber’s work.)
Money is created literally out of nothing, which surprises many people very much. The numbers on current accounts are created by the banks freely, in any moment when they provide a loan.
Nobody has the money supply under control today. It results from the loans provided by the individual banks. In good economic times create banks often far too much money, in bad times less or not at all.
And then we have Swiss daily newspaper Schweizer Zeit that explains in detail how the current way of money creation by commercial banks developed throughout history and how it makes the economic system inherently unstable. And it also introduces the idea of full-reserve banking as a solution
As a remedy, we can either set up a strict two-tier banking system or a full-reserve banking system, where the banks will only keep records of the assets, but outside their own balance-sheets and invest directly on account of clients in real estate, stocks, bonds and money market, thus the money creation takes place only at central bank.
This is an exciting step forwards! The UK press have a bit of catching up to do…