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The Fix

The Fix

Sensible Money is promoting the system of sovereign money creation as a solution to not only our financial problems, but many of our societal issues too. It is a modern variation of the system of full reserve banking which was first proposed in the 1920s. The system was refined to better suit a digital economy by James Robertson and Joseph Huber in their 2000 book Creating New Money

Our solution involves running the economy the way most people imagine it runs. The central bank would create the entire money supply in all forms while the banks would just do banking. They'd facilitate any electronic payments between accounts within the economy and they'd act as financial intermediaries between investors and borrowers. The banks would only lend existing money and a loan repayment would not cancel money out of existence.

For a detailed discussion of our proposal please download our document A Guide to sovereign money creation in the euro zone or continue reading below.

If you have any issues with our proposal please let us know by email, check our FAQs page or if you'd like to help please sign up to our newsletter or go to the Get Involved page.

Why we feel fundamental reform of the banking system is the only solution.



Many prominent economists including those pictured above have either actively promoted or have been very open to the idea of full reserve banking.



Where to begin?

First of all we'd have to change the rules regarding money slightly and acknowledge that bank balances are legal tender. Technically bank balances are a record of how much cash a bank owes and so they are defined as liabilities of the bank. However this is no longer a realisitic description of bank accounts because, for all intents and purposes, your bank balance is the money itself.

From then on only the central bank would have the power to create, or destroy, any electronic money.

Rarely would money be destroyed under this system, unlike today, and so after a transition period the economy may not need much new money to function well. If the central bank felt that new money was needed they'd create it by typing it into the government's bank account.

The government would not have the power to create money because of their poor history in managing the economy anytime they've been in charge of directly creating the money supply. However they would decide how best to spend any newly created money.

The decisions on how much to create, and how best to spend are thus separated.



How it would affect you?




No action would be required by the general public. To the average person the system would look very similar to the one we have today. Entrepreneurs would borrow from banks, stock markets would fluctuate, governments would borrow occasionally, we'd have credit cards & overdrafts, taxes & charges, rich & poor.

Even the daily workings of most bank employees wouldn't change.
But, we'd have a more stable economy.


The major change you'd notice would be that banks would separate your daily transactions and any money you wish to invest with them into two separate accounts, namely current and savings accounts.

If you have money in a current account only you can use it. And if you have money in a savings account only the bank can use it.

Current/Chequing Account

"Only you can use it"

  • From your point of view; this account would operate exactly the way your current account operates today.


  • However, money you deposit can only be accessed by you. The bank cannot touch it until you instruct them to.


  • One disadvantage you'd notice would be that banks would most likely charge for this safe-keeping & payments service since the bank cannot use this money for investments/loans; they make no profit from this money storage service.


  • If your bank went bankrupt your money would be completely safe. Your account and money would be transferred to another bank of your choosing.
  • Savings Account

    "Only the bank can use it"

  • This account is better viewed as an Investment account.

  • You would agree a term for your money is to be saved for (short-term, long-term etc. or a min. notice period)

  • You could not access your money until the end of the term.

  • The bank has full control of this money. Since you're forgoing the use of your money you are compensated by earning interest.

  • The amount of interest you receive depends on the risk you agree to. (low-risk, high-risk, etc.)
    Low risk: might be used for mortgage loans, credit card , etc.
    High risk: might be in a new development; off shore oil drilling, etc.

  • Either way you know what your money is being used for, the amount of interest you're likely to receive and the total loss if the investment turned bad.


  • Note that if you wanted to save money 100% risk free, you would keep it in your current account.

    If you want it seperated from your day-to-day current account banking; open a second current account, just for savings. Of course no interest will be earned in a current account (a charge for the service may in fact apply) but your money will be absolutely 100% safe and yours alone to access.


    More on Current Accounts:

    There would be no risk to current accounts whatsoever. In the unlikely event of a bank failure all current accounts would be transferred to other banks without burden to the taxpayer. There would never be a bank run or bank bailout again. There would be no need for banks to have deposit insurance either.

    Current account balances would no longer be considered a liability of the bank. They would finally be considered legal tender and would be held 'off the balance sheet'.

    More on Savings accounts:

    Savings accounts would be slightly more complicated. They would really be investment accounts and could be renamed as such. The banks would have to attract the funds that they want to use for lending. These funds would be subject to risk and reward like any other investment and there would be no absolute guarantees.

    Upon transferring money to a savings account customers would lose access to their money for a pre-agreed period of time or a minimum notice period. The savings account would never actually hold any money since any money 'saved' will immediately be transferred to a central investment 'pool' held by the bank.

    At the point of opening a savings account the bank would be required to inform the customer of the intended uses for the money that will be invested along with the expected risk level.

    The risk of the investment now stays between the bank and the investor rather than the taxpayer. In some accounts the risk will fall entirely upon the bank, while on others a large proportion of the risk will fall on the investor. Any investor opening a savings account should be fully aware of the risks at the time of the investment.

    Savings accounts would operate as follows;

    Banks would have the option of offering savings account holders a guarantee that they will be repaid a minimum percentage of their original investment, in some cases 100%, others 80%, 60% etc. or they may offer a guarantee on the rate of interest that will be paid on the savings account product, for example, guaranteeing to pay interest at 2%, 4% or 5% etc.

    For more detail on how savings accounts would function in practise click here for a worked example.


    The Transition

    The transition would be very gradual and most of it would happen over the course of around 25 years.

    We'd announce a changeover date, perhaps 12 months into the future, by which time the banks would secure existing money from investors for the purposes of lending.

    From that date on bank accounts would not appear as liabilities on the balance sheets of the banks, in a similar manner to which cash in wallets isn't recorded on the banks' balance sheets. Similarly, outstanding loans would be removed from the assets side of the banks' balances sheets. Instead they would be recorded at the central bank.

    As the commercial banks take in loan repayments for loans processed before the changeover date, the money would be transferred to the central bank whereupon the debt would be settled. Ultimately the money would be deleted in a similar manner to today's loan repayments. This would only occur for loans organised before the changeover date.

    No more money would be created through the bank loan process and so the central bank will have to type the deleted money into the Government's bank account and have them spend it into circulation. Eventually the money supply, as a whole, would be debt-free, although of course there would be some creditors of existing money and hence debtors within the system.



    The National Debt

    We'd also repay the national debt towards zero very slowly rolling over many 10 year bonds for decades. A portion of the national debt is owed to the central bank, essentially as an accounting procedure, and it would make sense to simply cancel this debt. The rest would be gradually repaid as the Government of the day sees fit.

    Some of the repayments may be funded with newly created money although this would not be the same as 'printing' money to repay the national debt, which loses a country international credibility. The reason for this is that the amount of new money created will be small and there will still be debate about how best to spend it.



    How this would suit the banks

    It might appear that our current banking system is the one which suits banks the best since ultimately ever euro is owed to a bank. They also have the power to create money although only for other people. Bear in mind also that banks delete most of the money they receive as repayments of loans.

    Full reserve banking could be better for all, including the financial sector.

    It would be easier for banks to earn money from circulation through full reserve banking than the stagnant fractional reserve banking we'll experience for the foreseeable future.

    Banks could manage their cash flows much better too.

    The amounts that the bank would need to repay to investors on any one day would be far more predictable also. With regards to minimum notice periods, they will know the statistical likelihood of an account being redeemed within the next 'x' days, and so they would be able to plan the payments that will come due on any particular day for many months into the future.

    Because they have a collection of debtors with specified repayment dates and amounts they could predict almost exactly how much money they will receive on any particular date for many months into the future.

    Consequently the banks' computer systems will easily be able to forecast cash flow with a much greater degree of certainty and prepare for any shortfall.

    Also, since every euro has a matching debt today it's impossible for everyone to repay their loans. Under full reserve banking it would be very possible for everyone to repay their loans and banks would not have to deal with the problems of defaults and repossessions.




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