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Further Reading

Economics as a subject does not regularly debate the pros and cons of fractional reserve banking over the modern version of full reserve banking we propose.

Students are still thought that money comes from the money-multiplier and this is rarely questioned. Hence different proposals for where money could come from are rarely discussed. We'd welcome more literature on this.

Our Publications

How Banks Create and Destroy Money
This document demonstrates the accountancy procedures by which banks create and destroy the vast majority of the Eurozone's money. It also explains how money is transferred domestically and throughout the Eurozone as well as procedures like quantitative easing and how the ECB attempts to implement its monetary policy.

Resolving the Eurozone Debt Crisis: A Guide to Sovereign Money Creation in the Euro Zone
This document gives a detailed description of how sovereign money creation would function in the euro zone. It also describes how we could transition smoothly to sovereign money creation and it addresses some issues that the proposed system would raise.

How Money is Created and Destroyed: A Guide to the Euro Zone Monetary System
This document is quite technical and it assumes some prior knowledge of accountancy and economics. It describes how the system actually runs and then analysis how incomplete the money multiplier model of banking is at describing the money creation process.

Similar Proposals

Modernising Money
Why Our Monetary System is Broken and How it Can be Fixed
Andrew Jackson and Ben Dyson (Positive Money) (2012)
The first part of Modernising Money describes in clear language how new money is created and allocated into the economy. Although this book is written with the UK banking system in mind, the analysis is equally applicable to the banking and monetary system of any modern economy. Equally, the reforms proposed here can be applied to any country that has its own currency, or any currency bloc, with only minor tailoring to the unique situation of each.

Creating New Money
A Monetary Reform for the Information Age
Huber and Robertson (2000)
It is well written and very concise. Similar in principal to other full reserve papers, it adapts the proposal entirely towards digital money. It also flows very well and references history as easily as it does modern concerns regarding inflation control, availability of credit etc. Excellent book.

100% Money
Irving Fisher (1939)
This book forms the basis of our sovereign money creation proposal. Written in the midst of the great depression, it's analysis and subsequent proposal are remarkable in the context of our current debt crisis. The foreword by the banker Robert H. Hemphill also provides an insight into how banks would benefit from full reserve banking were they made fully aware of it.

See also A Program for Monetary Reform (1939) by Irving Fisher and five other prominent economists. It's quite short and a very good introduction to our description of the problem and our proposal.

See Also:


Banks don't work the way you think – but they should

The Irish Independent
Paul Ferguson wrote this article which was published in April 2014.

"In the modern economy, money comes not from the printing press; it comes from bank loans."

"If you repay a loan to a bank, the money that you borrowed no longer exists."

"This is an inherently unstable way to try to run an economy. Banks create too much money in the good times and destroy too much in the bad times. To have something as important as the amount of money in the economy decided by the mood swings of bankers can never form the basis of a stable economy, as the test of time has shown."

"We could run the economy the way most of us imagine it is run, and have the European Central Bank issue all euros – the electronic ones as well as the notes and coins."

It's all a charade

The Sun on Sunday
Karl Deeter published this article after meeting with us to get a better handle on the monetary system. We were slightly misrepresented in the article because we don't believe banking's a farce, rather it's misunderstood. We are don't want a return to barter or the gold standard as may have been implied.

"Some people think that banking is a such group is called Sensible Money. They are part of a growing international movement who want to question and change the financial system as it stands."

"What actually happens is that central banks allow money to 'come into creation' when regular everyday banks give someone a loan. It isn't the case that banks only lend out money that depositors give them."

"One of the great mysteries that people don't tend to realise is that deposits don't create loans. Loans instead create deposits - and that of itself is the key to understanding the entire financial system."

99 problems but your cash ain't one

The Sun on Sunday
Karl Deeter published part 2 of his series on how the current system works. Some parts were great as Karl demonstrated that "the creation and destruction of money are the fundamentals of the entire thing".

In perhaps a more complicated than necessary approach he described how banks create the money they lent. However, he went on to demonstrate how misunderstood the system is when he suggested that banks could 'relend the same' money once it was redeposited with them. Worse still was the suggestion that they 'putting some aside on reserve' at the central bank when this involves two different types of accountancy-monies.

He gave the 'chicago plan' a mention and it's fair enough he doesn't agree with it for the reasons outlined in the end.

So Where Does Money Come From Anyway?

This is one of our articles and it was published on Newstalk's website in January 2013. It summarises most of our thoughts on the economic crisis in only 800 words.

Where's the interest in money creation?

Village Magazine
This is one of our articles and it was published in Village magazine. It explains how the 1830s recession in Ireland and the UK was eventually resolved by outlawing the creation of paper money by banks. If history repeats itself the current recession will end when we outlaw the creation of electronic money by banks.

Soon Parted: How Money System Makes Us All Fools

The Epoch Times
After being interviewed by journalist, Alan McDonnell, he wrote this article which perfectly captures our analysis of the debt crisis.

He describes how banks create money in parallel with debt and spends as much time on the destruction of money issue.

He also describes how the banking sector cannot behave prudently due to the charging of interest on money it creates.

Finally, McDonnell describes how the maxing out of mortgages makes this recession very unique. The entire article is worth reading.

Fear of inflation is not grounded in facts

The Irish Times
Martin Wolf agreed with some of our analysis of the debt crisis in The Irish Times.

"The expansion of the central bank's own balance sheet has not offset the declining willingness of the banks to lend. As a consequence, the amount of credit and so-called "broad money" in circulation is shrinking. Finally, fiscal policy is highly contractionary."

"Many believe so because there is a direct link ; the so-called 'money multiplier', between the reserves of commercial banks held at the central bank and the lending by commercial banks to the public."

As we've been arguing an abundance of central-bank-money doesn't mean more money in the economy since that requires someone to walk into a bank and organise a loan and the money multiplier model of banking does not apply.

"But a solvent bank can obtain the reserves it needs from the central bank. Moreover, the central bank will make sure that such a bank never falls short of reserves, since the alternative could well be a breakdown of the payment system."

"So what limits banks' lending? The answer is: its own solvency and that of its customers. So the equity capital of the bank is, accordingly, a far more important determinant of its ability to create money than its reserves."

Wolf acknowledges that, if anything, banks first create bank-account-money and look for the reserves later. He also agrees that the banks' confidence in the system is the main determinant of the money supply.

The banking revolution that would wipe out Britain's debts

The Telegraph
Jeremy Warner wrote about the prospect of moving to a full reserve banking system.

"This is not as ludicrous a suggestion as is sometimes made out. What's more, to describe it as radical may be a bit of a misnomer. Actually, 100pc reserve banking is a distinctly "conservative" approach to the problem, for its primary purpose is to make finance as low risk as possible."

"Nor is it the completely unrealistic, fringe idea sometimes supposed, having been treated very seriously by President Franklin D Roosevelt during the last great banking crisis in the 1930s, when it was quite widely supported by some of the leading economic thinkers of the time."

He then explains how new money is created and what limits the process of money creation: "By extending credit, bankers create money. Few of them admit to this dynamic"

"The only limits on this process of money creation are the banker's instinctive fear of making a bad loan"

He describes how this has led to credit bubbles and banking crisis and also how money gets destroyed and money supply shrinks when the confidence of banks collapses:

"It is at this stage of the credit cycle that the process of money creation goes violently into reverse. As the bank shrinks its balance sheet by calling in loans, it destroys deposits with the same vigour it created them on the way up."

He continues in describing the benefits of 100% reserve banking: no risk of a bank run, elimination of credit cycle and the too-big-to-fail problem, no need for deposit insurance, reduction of debt etc.

Jeremy then expresses his concerns with 100% reserve banking:

"When something looks too good to be true, it generally is. One of the most obvious drawbacks is that there would plainly be less credit and less leverage in such a system. Indeed, to the extent that credit existed, it would look much more like high-risk equity. For all the social and economic scarring the credit cycle can inflict, it is also a key part of the creative destruction of capitalism."

"The biggest problem of all with 100pc reserve banking is that of transition. Getting from here to there would be a truly revolutionary and potentially highly destabilising process, so much so that it is hard to think of any advanced economy embarking on it."

The Case For Helicopter Money
The Financial Times
This is the most promising article to date on this subject and it comes from Martin Wolf. From the piece:

"Some are sure that the troubled western economies suffer from a surfeit of money. Meanwhile, orthodox policy makers believe that the right way to revive economies is by forcing private spending back up. Almost everybody agrees that monetary financing of governments is lethal. These beliefs are all false". Wolf notes, "Measures of broad money have stagnated since the crisis began, despite ultra-low interest rates and rapid growth in the balance sheets of central banks".

We've been highlighting that the money supply cannot grow if no-one is willing or able to get a bank loan. "Thus, when banks cease to lend, deposits stagnate". He explains further "Expanding banking reserves is an ineffective way to increase lending" which is exactly what we've been arguing.

He goes on; "It is impossible to justify the conventional view that fiat money should operate almost exclusively via today's system of private borrowing and lending. Why should state-created currency be predominently employed to back the money created by banks as a byproduct of often irresponsible lending?".

Finally he alludes to our solution to the debt crisis when he writes "Provided the decision on the scale of financing rests in the hands of the central bank and it, in turn, looks at the impact of the policy on the economy, this need not even generate high inflation, let alone hyperinflation".

Hitch-hiker's guide to monetary infrastructure
The Financial Times
Professor Richard Werner of the University of Southampton wrote this letter which was published in the Financial Times. It was in response to the Bank of England's suggestion that negative interest rates on the banks' reserves would encourage the banks to lend these reserves.

This is an absolutley ridiculous suggestion because banks don't lend money which comes from reserves but the economists of the Bank of England may have been taught otherwise. Werner corrects them as follows:

"But [the banks] don't lend existing money. Instead, they newly invent the money that they lend, by pretending that the borrowers have deposited it and thus crediting their accounts without transferring any money there, by simply inputting the desired number."

"This is how the bulk of the money supply is invented into existence."

The Case For Truly Bold Monetary Policy
The Financial Times
Martin Wolf discusses the case for fundamental reform of the monetary system. From the piece:

"In normal times, however, actual supply [of money] is a byproduct of lending activities of banks. It is, in brief, the product of privately operated printing presses."

"The power given to banks to create money is a privilege."

Trading without money? Why a new system can address the economic spiral
The Guardian
Jem Bendell discusses the money creation/destruction system very well in this thought-provoking article.

"In most countries, about 3% of our money originates from government-owned mints that make notes and coins. The rest is digital and created by private banks, out of nothing, when they issue loans. When we go to a bank to take out a loan, the bank does not lend its own money or that of its depositors."

"As banks create the amount borrowed, but not the interest to be paid on that loan, there is now more debt in the world than money. That means there must be an increasing amount of lending to pay off debts plus interest while maintaining the amount of money in circulation, which means economic activity must continually increase. Otherwise, as debts are paid off, so our money supply shrinks, which leads to defaults, foreclosures, bankruptcies, unemployment, depression, and, history shows us, then crime and extremism."

Pre-school lessons for the bankers
The Financial Times
Pauline Skypala demonstrates the confusion over how money is created very well in this thought-provoking article.

"Their first lesson must be on what money is and where it comes from. There is some disagreement about both."

"Few would venture the opinion that most money in circulation is created by private banks when they make loans, but this view is gaining currency"

The fiscal cliff is a harbinger of the earthquakes to come
The Irish Times
John Waters discusses the 'fscal cliff' and the unsustainability of the current monetary system. He confimred the origin on money with an even higher debt and he also alludes as to why we have a mortgage arrears problem:

"Every euro minted in the European economy comes into being as a debt"

"Since there is no way of generating financial resources other than this money-as-debt model, it is impossible for all of these escalating charges to be met by everyone upon whom they are levied."

IMF's epic plan to conjure away debt and dethrone bankers
The Telegraph
Ambrose Evans-Pritchard discusses The IMF's working paper The Chicago Plan Revisited which concludes very positively on the system of full reserve banking. In the article Evans-Pritchard writes:

"Rather, banks would become what many erroneously believe them to be today, pure intermediaries that depend on obtaining outside funding before being able to lend."

"Private lenders would no longer be able to create new deposits."

Money Talk
The Irish Independent
This is one of our letters and it was published in The Irish Independent on 26th January 2013. In it we discuss the money creation and destuction process.

"Simply put, digital money comes from bank loans because banks create the money they lend by typing new money into a borrowing customer's current account.

"Many people believe we have "everlasting" money once it's created. However, when banks process loan repayments, the (digital) money used to settle the debt no longer exists."

Gloating about Quinn family misfortunes is sickening
The Irish Times
John Waters discusses the wider issues involved in Sean Quinn's dispute with Anglo Irish Bank In the article John notes;

"For every euro of money created, a corresponding debt is brought into being."

"Privately-owned banks, operating all but indifferently to the public good, create and destroy money more or less at will."

"When you extend to bankers the power to create money ex nihilo, your can hardly be surprised if they start to believe themselves superhuman."

Britain and banking: Back to the 1830s
The Independent (UK)
Lee Williams discusses the parallels bewteen the financial crisis of the 1830s and today. Prior to 1844 banks could print their own notes and to return stability to the economy the Bank of England made this practise illegal. Williams discusses the argument that, given that the lawmakers at the time could not have foreseen the growth of electronic money, perhaps it's time to take this power away from them also.

"Today it's not paper money that the banks have a license to print, but electronic money."

"The vast majority has been created by private banks in the form of lending, in the interests of their own profit - 97% of the money in this country is essentially debt."

"The banks had the power to create paper money, now they have the power to create electronic money. The problem is that legislation hasn't kept up with technology."

Yes, banking's a mess, but be part of the solution. Move your money!
The Guardian
Banks should lend from their capital, not money conjured out of thin air, argues Deborah Orr:

"Every time they made a loan, the banks simply typed the amount they were lending into their computer system, transferred it to their victim's account, and charged interest for the privilege."

"Thanks to the advent of computer technology, the banks simply found themselves able to turn a customer's desire for a loan into an actual loan. It seems plain, surely, that it is this ridiculous state of affairs, and has to stop."

Towards a steady state economy?
The Financial Times
Izabella Kaminska discusses an earlier article published in The Guardian which explores the concept of perpetual growth on a finite planet.

"Money is created as interest-bearing debt: it only comes into being when someone promises to pay back even more of it. Therefore, there is always more debt than there is money."

"One thing is clear: we are at the end of an era. No one seriously believes that we will grow ourselves out of debt again. There is an alternative. It is time to begin the transition to a steady-state economy."

Start by understanding how money is created
The Financial Times
This letter written by Mr. James Skinner was published in the Financial Times. In the piece Skinner calls for a clear understanding of the monetary system before participants enter debate.

"The rest of the money in circulation is created by the private banking sector, for its own purposes, in the form of debt."

Bankers coin it while debt burden grows
The Irish Times
John Waters gave a very good analysis of the dbet crisis in the article. It's well worth reading in full but highlights include;

"This debt explosion showed up not in consumer prices but in asset prices, notably in property."

"This is not capitalism, he suggests, but "creditism". It is this system which has broken down, and unless you understand it, you will not be able to fix it."

Duncan Dough notes
The Economist
Richard Duncan discusses his book The Dollar Crisis in which he provides an analysis of how the debt crisis occurred that's very similar to our analysis. From the article;

"At the core of the process of modern "money creation" is a form of priestcraft - the manipulation of money systems by powerful bankers, who generate power and wealth for themselves and their accomplices at the expense of social functioning and human security."

"Money is generated only when it is borrowed - each new loan means that a specific amount of money is brought into being. When the loan is eventually repaid the capital is eliminated."

"Somewhat greater amounts of new debt materialise in the form of interest, which continue to exist as a negative phenomenon, without any positive corresponding element of wealth or tokens. The interest exists nowhere except as a debit, and so the growing accumulation of debt in our economies is not a misfortune but a structural inevitability. The continuing scramble to find money to pay down interest means that the only way debt repayments can be discharged is by borrowing more money, which throws the structural flaw into a new and wider orbit."

Pan-European investment plan is needed to kick-start growth
The Irish Independent
Brendan Keenan wrote this article after pressure from us to distinguish between central bank money and commercial bank money.

"One might suppose that experts would at least agree on the nature of banking and money, but apparently not."

"There are pressure groups arguing for a new definition of money-creation, based on bank lending."

"Part of the argument is that the money being supplied by central banks is the wrong kind of money, and not suitable for recycling into the real economy."

"What is needed, they say, are borrowers, which would allow the banks create money from new loans. That presents an obvious difficulty, in a world already awash with debt."

Against Full Reserve Banking

Accounting for Fractional-Reserve Banknotes and Deposits
Or, What's Twenty Quid to the Bloody Midland Bank?
Lawrence H. White
Narrow Banking is not the answer to systemic fragility
Charles Goodhart
Should Banks Be Narrowed?
Biagio Bossone
Banking Theory, Deposit Insurance, and Bank Regulation
D. W. Diamond, P. H. Dybvig
None of the above critique full reserve banking or sovereign money creation exactly as Sensible Money describes it. However, they are still useful in analysing our proposal.

Other Books On Banking

Modernising Money
Why Our Monetary System is Broken and How it Can be Fixed
Andrew Jackson and Ben Dyson (Positive Money) (2012)
The first part of Modernising Money describes in clear language how new money is created and allocated into the economy. Although this book is written with the UK banking system in mind, the analysis is equally applicable to the banking and monetary system of any modern economy. Equally, the reforms proposed here can be applied to any country that has its own currency, or any currency bloc, with only minor tailoring to the unique situation of each.
Where does money come from?
This book explains exactly how money is created in the UK but it is equally applicable in principal to the Eurozone and elsewhere. It is based on over 500 original documents from the Bank of England and other banking authorities and it is the most comprehensive guide ever published on how money is created.

Its foreword offers an excellent straightforward summary on money creation and the book gets as technical as you like in its content later on. Very factual.

The Grip of Death
Michael Rowbotham
This offers a highly critical analysis of our current fractional reserve banking system. If you think our current system has done an ok job so far of helping global trade you must read this book. It concentrates on the fact that to confortably repay past debts the economy is forced to expand just to remain stable. Apart from pointing out that perpetual expansion is not a sustainable way to run an economy, it provides an eye-opening analysis of the effects such expansion has on all aspects of the economy. The harmful social consequences of running our economy the way we do are laid bare.
What Went Wrong with Economics
Michael Reiss
Highly recomended, it explores how economists didn't predict the debt crisis. Since economists have to simplify the model for how the economy will behave sometimes it's to the point that the model is unrealistic. This book examines the possibility that the problem with economics stems from flawed assumptions.

Not quite pro full reserve banking but questions mainstream economics nonetheless.

Debunking Economics
The Naked Emperor Dethroned
Professor Steve Keen
A must for anyone who has studied economics. A 'No holds barred' approach is taken in condemning economics as a subject riddled with flawed assumptions and lacking accountability for its errors and still his Australian charm leaves you thinking 'Fair enough'. This book shows how economists ignore the effect of debt and that so much of what it thought today is outdated.

Prosperity Without Growth
Economics for a Finite Planet
Tim Jackson
Jackson provides a great analysis on how a rise in GDP and standard of living aren't linked. Is also questions 'Business as usual' and the obvious flaw of perpetual expansion in a finite world. Good analysis of how economics affects the environment. It does allude to our debt-based system as being the heart of the problem but doesn't condenm it outright. Great to see continuous growth forever as a means of stability being questioned nonetheless.

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