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Every day it seems that Europe sinks deeper and deeper into a pit of debt, with one country after another finding the interest rates demanded on its borrowings climbing ever higher.
All these problems could be said to stem from the fact that at present the private banks have a virtual monopoly on the power to create money, through our fractional reserve banking system. By the time of the credit crunch, this power had been pushed to the limit by the banks, as even Mervyn King, Governor of the Bank of England, suggested in a lecture in 2010:
‘The size of the balance sheet is no longer limited by the scale of opportunities to lend to companies or individuals in the real economy. So-called ‘financial engineering’ allows banks to manufacture additional assets without limit.’
When the banks create money it is in the form of debt, on which interest is charged. When the government needs more money than it can raise in taxes, it borrows, hence our national deficit. Things have been done this way for so long it may seem that there is no other way of operating - but that isn’t the case.
Through its programme of quantitative easing the Bank of England, perhaps unintentionally, has broken a taboo and shown that there could be another way of doing things - a way that could be socially useful and democratically accountable. The financial system could become the servant and not the master of the people.
Since March 2009, in an attempt to stimulate the economy, the Bank of England has created £275 billion of electronic money. This had never been done before in the UK, and was seen as a last resort, a sign of the dire straits we were in. This new money was channelled into the banks (by buying their debt) in the hope that they would start lending again with the additional cash, and get the economic wheels turning. So far, however, the banks appear to have held on to most of it.
It would have been so much better if the Bank of England had made this money available, in the form of interest-free loans, for socially useful projects such as renewable energy schemes. There have been proposals around for a ‘Green New Deal’ since 2008 - most notably from the Green Party. This would have done far more to get the economy moving, and loosened the stranglehold of the private banking sector.
This creation of interest-free public money is not an outlandish or extreme idea. It is supported by, amongst other organisations, the Christian Council for Monetary Justice (CCMJ). It submitted a paper to the Independent Commission on Banking, in which it proposed that the Bank of England should "emerge as sole creator of money (as repayable debt) and to distribute it, interest free, for the benefit of the whole economy in terms of socially useful investment and to provide short term credit for purchasing consumables. This can be envisaged by making the existing commercial banks responsible for administering, for a fee, these interest-free funds."
Austin Mitchell MP, who is Vice-Chairman of the CCMJ, has tabled several Early Day Motions in the House of Commons on the subject, supported by the Forum for Stable Currencies, which advocates using ‘the people’s credit for the people’s purposes’. For years before the credit crunch they were voices crying in the wilderness, warning of the dangers of our growing debt burden. How much better off we would be now if they had been listened to. We would have a smaller deficit, and there would be no need for such savage cuts to public services.
In the House of Lords, Lord Ahmed is a prominent supporter, and has drawn attention to the fact that in Islam, charging interest on debt is forbidden. As Christians wrestle with the issues raised by the St. Paul’s protest, they have a great opportunity to work together with people of other faiths to put forward an alternative model for our economy.
Supporting publicly created interest-free money would be a great step in the right direction.
© Bernadette Meaden has written about religious, political and social issues for some years, and is strongly influenced by Christian Socialism, liberation theology and the Catholic Worker movement.Tweet