The Case for Sovereign Money
In the process of coming to terms with the financial crisis since 2008, the easily visible causes were examined first, for example, perverse incentives as well as questionable practices of risk management and accounting. Thereafter, some structural aspects came to the fore, such as deregulation, insufficient capital buffers and missing firewalls. In the meantime, increasing attention is being paid to the money system which in fact is the foundation of it all. The present system of fractional reserve banking is the root cause of many financial problems. The final answer to unstable finances and unsafe bankmoney (deposits) is very likely to be sovereign money.
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What is Sovereign Money?
Why it must be put on the agenda and what a sovereign
money system would look like
Sovereign money is legal tender issued by a monetary authority, in most cases by a nation-state's independent central bank, or the ECB. The counterpart to sovereign money is commercial bankmoney, i.e. demand deposits on current bank account. Bankmoney is created whenever a bank grants a loan, or overdraft, or buys stocks and bonds or real estate from nonbanks, and pays for this by crediting the customers' or sellers' accounts. These credits need to be backed by sovereign central-bank money, but just to a very small percentage of 1.5% in the UK, 2.5% in the eurozone, and less than 8.5% in the US...
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• Sovereign Money. An Introduction, by Ben Dyson, Graham Hodgson and Frank van Lerven, Positive Money, London.
• Miguel A. Fernández Ordónez - Governor of the Bank of Spain and member of the ECB's Governing Council from 2006 to 2012 - gave a remarkable speech on > El Futuro de la Banca: Dinero Seguro y Desregulación del Sistema Financiero, in which he speaks out in favour of sovereign money reform.
• Towards a Twenty-First Century Banking and Monetary System. Submission to the Independent Commission on Banking , 39 pages, 2011, by Ben Dyson (Positive Money), Tony Graham, Josh Ryan-Collins (New Economics Foundation) and Richard A. Werner (University of Southhampton).
A compact presentation of the British monetary reform approach. Its core components are based on the Huber/Robertson proposal of Seigniorage Reform and by and large concur with the monetary reform concepts of the American Monetary Institute, Monetative Deutschland, Vollgeld Switzerland, and others.
Note: Even though the authors used the term ‘full-reserve banking’ at the time, this is definitely not a 100%-reserve approach, but a plan for a single-circuit sovereign money system beyond reserve banking, thus a new currency approach, not a bank-liability system anymore.
• Explaining Monetary Reform - Presenting the American Monetary Act, brochure by Stephen Zarlenga, American Monetary Institute.
• Stephen Zarlenga on > The Need for Monetary Reform, American Monetary Institute.
• Andy Anderson & Ron Morrison on introducing a sovereign currency, the Scotmerk, in Scotland > Moving On.
• Richard C Cook > Monetary Reform and How a National Monetary System Should Work, Global Research, 11 May 2007.
Original Sources on sovereign money
Introduction and summary of
• Creating New Money. A Monetary Reform for the Information Age by James Robertson and Joseph Huber, New Economics Foundation London, 2000.
• Here is how James Robertson introduced the subject in his > Alternative Mansion House Speech, London, June 2000.
• Here is how Joseph Huber presented the subject in a paper given at the Forum for Stable Currencies, House of Lords, June 2001 > Seigniorage Reform and Plain Money.
• Another document on this > Plain Money. A Proposal for Supplying the Nations with the Necessary Means in a Modern Monetary System.
'Managing an economy's money is among the most important tasks of the government'.
Free exchange, The Economist, Dec 3rd 2016