James Robertson, together with Joseph Huber, developed the idea of monetary reform in their book ‘Creating New Money‘, published in 2000 by the New Economics Foundation.
Instead of banks being able to create de facto currency (they print credit entries into their customers’ current accounts, as interest-bearing loans on which the bank collects interest), the authors say the government should grant the right to issue currency to its central bank alone. This bank – the Bank of England, in our case – then issues currency not into the accounts of the general public, but only into a current account held by the government.
The government then spends the money into circulation, through its public spending, or in cutting taxes. So now all new-made money is being directed by Parliament, and not by the banks. Banks can carry out all their other normal business. People can still take out loans, and make investments, as can the banks. But the right to issue new money belongs to the government and not to private banks.
Technically, the government already holds the exclusive right to issue money. It is traditionally called ‘seigniorage’, and the reform basically means recognising that the electronic money banks create is also real money – just like cash in your wallet. It should also be for the government, then, to issue that electronic money. It would be changing the law to mean what it says on this.
Robertson and Huber suggest that, over a period of years, the government starts issuing all the electronic money by paying it to itself. It sounds a bit unfair: as if the Prime Minister can simply have as much money as he wants for his latest policy while the rest of us get nothing.
What happens is that the central bank – independent from the government – gets to decide how much electronic money it wants to issue, to keep inflation at a healthy level, and then it issues that amount. The government receives the money as an interest-free amount in its current account at the central bank. Nice for the government
Then the government spends all the money into circulation. It spends it on hospitals – putting the money into the bank accounts of British building firms, and medical supply firms. It spends it on more nurses – putting the money into the bank accounts of NHS trusts to pay people’s wages. It spends it on schools, on universities. It puts it into the accounts of people, businesses, and charities across the nation. The money moves through the economy in the usual way: a research scientist spends some of their salary on a holiday bought through a travel agent, a nurse needs to get their car fixed.
Or, the government can choose to spend it on tax reductions: because it’s getting all this money, it can take less in income tax. This way, the money is already in circulation as extra wages that aren’t being taken by the Inland Revenue.
It’s not a sudden change. There’s no real difference in how you can get your money (it’s still in your bank account) or how you use it (just like before). The difference is that now your government has the power to pump money into the parts of the British economy that need it – not the parts where money can make a profit. The Parliament can vote on where the money goes. It can rebuild the economy in areas where a lot of jobs have been lost since the 80s. It can help finance new businesses and factories, if that’s what people have voted for, or it can give our NHS the funds it needs. It can do both, if that’s what we want – or we can choose to ask for lower taxes.
Monetary reform gives back to government the right that belongs to it, really.