Monetary Reform describes any movement or theory that proposes a different system of money and finance. Money is anything that is generally accepted as Payment for Goods and services and repayment of Debts.
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Common targets for reform
Of all the aspects of monetary policy certain topics reoccur as targets for reform:
Fractional Reserve Banking
Fractional Reserve Banking is the system whereby a bank may lend money in circumstances where it has the obligation to return this money to depositors/savers immediately at call; through this accelerated scheme of money creation, it is able to multiply the amount of deposits/capital the banking system has by a factor determined by law. Monetary policy is the process by which the Government, Central bank, or monetary authority of a country controls (i the Supply of Money, Fractional-reserve banking is the banking practice in which Banks keep only a fraction of the value of their Bank notes and demand deposits in reserve The resultant loan consists only of a fraction of what the bank has in reserve for immediate payment to its clients/depositors. When what was perhaps an illegitimate practice by goldsmiths (akin to embezzlement) became enshrined in law, the total amount of money supply started expanding rapidly, and is still expanding exponentially today. A goldsmith is a Metalworker who specializes in working with Gold and other Precious metals usually in modern times to make Jewelry. Embezzlement is the act of dishonestly appropriating or secreting assets usually financial in nature by one or more individuals to whom such assets have been entrusted In Economics, money supply, or money stock, is the total amount of money available in an Economy at a particular point in time
Money no longer represents any asset of value. It represents debt (or intangible obligation)
Because banks now primarily create money through fractional-reserve banking, money no longer is backed by a tangible asset; it does not represent anything other the debt of another; the only "tangible" aspect of the system is the borrower’s promise to pay. Fractional-reserve banking is the banking practice in which Banks keep only a fraction of the value of their Bank notes and demand deposits in reserve Representative money refers to Money that consists of Token coins other physical tokens such as certificates and even non-physical "digital certificates" Debt then becomes the underlying currency.
Governments do not supply money. Private banks do, for profit
Many people criticize the fact that governments pay interest for the use of their own money. Private banks are Banks that are not incorporated. A non-incorporated bank is owned by either an individual or a general partner(s with limited partner(s [1][2] This leaves the state of a nation's economy susceptible to the interests of private bankers who create the money solely for the purpose of creating ongoing profits for their employees and shareholders, without any other binding social or legal obligations to the broader community that are normally expected from government entities. For the government of parliamentary systems see Executive (government.
Prominent economists criticise existing global financial institutions like the World Bank and International Monetary Fund and their policies regarding money supply, banks and debt in developing nations. The World Bank is an internationally supported Bank that provides financial and technical assistance to developing countries for development programs (e The International Monetary Fund ( IMF) is an International organization that oversees the Global financial system by following the Macroeconomic In Economics, money supply, or money stock, is the total amount of money available in an Economy at a particular point in time A banker or bank is a Financial institution whose primary activity is to act as a payment agent for customers and to borrow and lend money Debt is that which is owed usually referencing Assets owed but the term can cover other obligations
Alternative money systems
Some countries have created a currency board, or granted independence to their central bank; the Bank of England, for example. A currency board is a Monetary authority which is required to maintain a Fixed exchange rate with a foreign currency A central bank, reserve bank, or monetary authority is the entity responsible for the Monetary policy of a country or of a group of member states The Bank of England (formally the Governor and Company of the Bank of England) is a state-owned institution and the Central bank of the United Kingdom This may enable the setting of interest rates to be less susceptible to political interference and thereby assist in combating inflation (or debasement of the currency), but many suggest that more radical monetary reform can assist in facilitating positive economic or social change. Interest is a fee paid on borrowed capital Assets lent include Money, Shares, Consumer goods through Hire purchase, major assets In economics inflation or price inflation is a rise in the general level of prices of goods and services over a period of time Although central banks may appear to control inflation, through periodic bank rescues and other means, they may inadvertently be forced to debase the currency to save the banking system from bankruptcy or collapse during periodic bank runs. A central bank, reserve bank, or monetary authority is the entity responsible for the Monetary policy of a country or of a group of member states A bank run (also known as a run on the bank) occurs when a large number of Bank customers withdraw their deposits because they believe the bank is or might
Theorists such as Robert Mundell see a role for global monetary reform as part of a system of global institutions alongside the United Nations to provide global ecological management and move towards world peace. Robert Alexander Mundell CC (born October 24, 1932) is a professor of economics at Columbia University. The United Nations ( UN) is an International organization whose stated aims are to facilitate cooperation in International law, International security Ecology (from Greek grc οἶκος oikos, "house(hold" and grc -λογία -logia) is the scientific study of World peace is an ideal of freedom, Peace, and Happiness among and within all nations Henry Liu of the Asia Times Online argues that monetary reform is an important part of a move towards post-autistic economics. Asia Times Online (abbr "ATol" is an Internet -only news and commentary publication that reports and examines geopolitical, political The movement for Post-Autistic Economics ( PAE) was born through the work of Sorbonne Economist Bernard Guerrien.
While most mainstream economists favour monetary reforms to reduce inflation and currency risk and to increase efficiency in the allocation of financial capital, the idea of all-encompassing reform for green or peace objectives is typically espoused by those on the left-wing of the subject and those associated with the anti-globalization movement. In economics inflation or price inflation is a rise in the general level of prices of goods and services over a period of time Currency risk is a form of Risk that arises from the change in price of one Currency against another Economic efficiency is used to refer to a number of related concepts Financial capital is money used by Entrepreneurs and Businesses to buy what they need to make their products or provide their services " Anti-globalization " is a term that encompasses a number of related ideas
Still other radical reform proposals (with utopian objectives) emphasise monetary, tax and capital budget reform which empowers government to direct its economy toward solutions to economic problems markets do not solve. In particular a number of monetary reformers, such as Stephen Zarlenga support the restriction or banning of fractional-reserve banking and the replacement of fractional-reserve banking with government-issued debt-free fiat currency issued directly from the Treasury rather than from the quasi-government Federal Reserve. Stephen A Zarlenga is director of the American Monetary Institute, an institute dedicated to Monetary reform in the United States Fractional-reserve banking is the banking practice in which Banks keep only a fraction of the value of their Bank notes and demand deposits in reserve Fractional-reserve banking is the banking practice in which Banks keep only a fraction of the value of their Bank notes and demand deposits in reserve The terms fiat currency and fiat money relate to types of currency or Money whose usefulness results not from any intrinsic value or guarantee that it can be For the US government securities see Treasury security. Also see Treasury management.
Government issued money.
Some Governments have experimented in the past with government-created money independent of a bank. The American Colonies used the "Colonial Scrip" system prior to the Revolution, much to the praise of Benjamin Franklin. Colonial Scrip was a paper Fiat money as opposed to specie issued by the colonies in the pre-revolution era up until 1775 In this article the inhabitants of the thirteen colonies that supported the American Revolution are primarily referred to as "Americans" with occasional references to "Patriots" Benjamin Franklin ( April 17 1790 was one of the Founding Fathers of the United States of America. He believed it was the efforts of English bankers to revoke this government-issued money that caused the Revolution. Abraham Lincoln used interest-free money created by the government to help the Union win the American Civil War. Abraham Lincoln (February 12 1809 &ndash April 15 1865 the sixteenth President of the United States, successfully led his country through its greatest internal Causes of the war See also Origins of the American Civil War, Timeline of events leading to the American Civil War The coexistence of a slave-owning South [3] He called these 'Greenbacks' "the greatest blessing the people of this republic ever had. "[4][5]
The islands of Guernsey and Jersey in the Channel Islands create their own money, the Guernsey pound and Jersey pound, to supplement the British Pound and the Scottish pound. The Bailiwick of Guernsey (Bailliage de Guernesey is a British Crown dependency in the English Channel off the coast of Normandy. The Bailiwick of Jersey ( Jèrriais: Jèrri) is a British Crown dependency off the coast of Normandy, France. The Channel Islands ( Norman: Îles d'la Manche, French: Îles Anglo-Normandes or Îles de la Manche) are a group of Islands The pound is the currency of Guernsey. Since 1921 Guernsey has been in Currency union with the United Kingdom and the Guernsey pound is not a separate currency The pound is the currency of Jersey. Jersey is in Currency union with the United Kingdom and the Jersey pound is not a separate currency but is an issue of banknotes The Pound Sterling ( symbol £; ISO code: GBP) subdivided into 100 pence (singular penny) is the Currency The pound Scots (Pund Scots was the national unit of Currency in the Kingdom of Scotland before the country entered into political and Currency union
In America and Britain, however, government-issued money has never been able to gain enough momentum to become an established institution because of the large degree of influence that private bankers have in governments. [6]
Binary economics proposes that central banks issue interest-free loans to the government and for public projects or private capital. Binary economics is a heterodox theory of Economics that endorses both Private property and a Free market but proposes significant reforms to They would be administered by the banking system for the spreading of productive capacity and consuming capacity, on market principles, throughout the population.
Local barter, local currency
Some go further and suggest that wholesale reform of money and currency, based on ideas from green economics or Natural Capitalism, would be beneficial. Ecological economics is a Transdisciplinary field of academic research within Economics that aims to address the interdependence between human economies and natural Natural Capitalism Creating the Next Industrial Revolution is a 1999 book co-authored by Paul Hawken, Amory Lovins and Hunter Lovins. These include the ideas of soft currency, barter and the local service economy. Soft currency indicates a type of currency whose value may depreciate rapidly or that is difficult to convert into other currencies Barter is a type of Trade in which goods or services are directly exchanged Service economy can refer to one or both of two recent economic developments
Local currency systems can operate within small communities, outside of government systems, and use specially printed notes or tokens called scrips for exchange. In Economics, a local currency, in its common usage is a Currency not backed by a national government (and not necessarily Legal tender) and intended Scrip is any Substitute for Currency which is not Legal tender and is often a form of credit. Barter takes this further by swapping goods and services directly; a compromise being the Local Exchange Trading Systems (LETS) scheme: a formalised system of Community-based economics that records members’ mutual credit in a central location. Barter is a type of Trade in which goods or services are directly exchanged Local Exchange Trading Systems (LETS also known as LETSystems are local non-profit exchange networks in which goods and services can be traded without the need for printed Community-based economics or just community economics encourages local substitution and a rejection of outside Energy subsidy and coercion Mutual credit is a type of Alternative currency in which the currency used in a transaction can be created at the time of the transaction
Micro credit
Banks offering small loans on simple interest, not compound interest, can make a difference to small-scale business people trying to make a start without collateral. Microfinance refers to the provision of financial services to poor or low-income clients including consumers and the self-employed Interest is a fee paid on borrowed capital Assets lent include Money, Shares, Consumer goods through Hire purchase, major assets Compound interest is the concept of adding accumulated Interest back to the principal so that interest is earned on interest from that moment on In lending agreements collateral is a borrower's asset that is Forfeited to the lender if the borrower is insolvent—that is unable to pay back the principal and interest on The Grameen Bank instituted this technique and remains popular and influential. The Grameen Bank (গ্রামীণ ব্যাংক is a Microfinance organization and Community development bank started in Bangladesh that
Return to the gold standard
A move away from credit money towards representative money would mean tying currency to a fixed commodity such as gold, silver or both. Credit money is any future claim against a physical or legal person that can be used for the purchase of goods and services Representative money refers to Money that consists of Token coins other physical tokens such as certificates and even non-physical "digital certificates" The gold standard is a monetary system in which a region's common media of exchange are paper notes that are normally freely convertible into pre-set fixed quantities of Gold Free Silver was an important political issue in the late 19th century United States. In Economics, bimetallism is a Monetary standard in which the value of the Monetary unit can be expressed as a certain amount of gold or as a certain amount Digital means are also now possible. Electronic money (also known as e-money, electronic cash, electronic currency, digital money, digital cash or digital currency
References
- ^ For an example of the public criticism of the current monetary system, see the speech of the Earl of Caithness in the House of Lords on 5 March 1997
- ^ Other examples of such critics include Christian monetary reform groups such as the Bible Believers, Austrian Economists such as Murray Rothbard, and other monetary reformers such as Antal E Fekete, Stephen Zarlenga, Ellen Hodgson Brown and Michael Rowbotham
- ^ The Forgotten War
- ^ Source of quote discussed here
- ^ Quoted in the Michael Journal here
- ^ The Forgotten War
See also
External links
- American Monetary Institute
- Prosperity UK A monthly journal on Money Reform which campaigns for publicly-created debt-free money
- Committee on Monetary and Economic Reform The Committee on Monetary and Economic Reform
- The Spirit of Money a film by INWO, a German initiative (stills)
- Web of Debt
- [1]] advocating economic democracy through freedom from national debt. Some critics of Fractional reserve banking and the related monetary system may refer to it by the political term debt-based monetary system. Social Credit is a socio-economic Philosophy wherein Consumers fully provided with adequate Purchasing power, establish the policy of production Seigniorage (ˈseɪnjərɪdʒ '''''sei'''nY'Ridj'') also spelled seignorage or seigneurage, is the net Revenue derived from the issuing of
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