EXTRACT; Today’s monetary and banking system is, in essence, still based on the 500 year old fractional reserve system suited to metal money. It still has to catch up with the new payment practices and the accelerating circulation of non-cash money based on modern information and telecommunication technology. It is now opaque, inherently unsafe and unstable, almost impossible to control, and too expensive. It is increasingly perceived as part of an unaccountable system of money and finance that needs reform at every level – local, national and international. New initiatives and proposals are in the air. The New Economics Foundation has been prominent in developing and promoting LETS (local exchange trading systems), time money and other alternative or parallel currencies, microcredit, community banking, credit unions, and other new approaches to local community finance (Mayo et al 1998). The reform we discuss in this report is different from those. It is not directly linked to them, but is a wider issue. It is a reform of the mainstream monetary and banking system. It reflects the values of a democratic civil society and the need for economic and financial stability. It is in tune with the Information Age. It is basically simple. It is in two parts.
1. Central banks should create the amount of new non-cash money (as well as cash) they decide is needed to increase the money supply, by crediting it to their governments as public revenue. Governments should then put it into circulation by spending it.
2. It should become infeasible and be made illegal for anyone else to create new money denominated in an official currency. Commercial banks will thus be excluded from creating new credit as they do now, and be limited to credit-broking as financial intermediaries.
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Written by Professor Joseph Huber and James Robertson.