NEF-Southampton-Positive-Money-ICB-Submission

educing the income and purchasing power of the very people who rescued the economy by borrowing when
interest rates were low.
In contrast, full-­‐reserve banking offers the Bank of England and the Monetary Policy CommiOee a way of
directly increasing or decreasing the money supply, and therefore avoids this ‘manic-­‐depressive’
management of the economy. It also avoids the need to ship interest rates that affect every exisGng borrower
simply to influence the small group of people who are considering increasing their borrowing at any
parGcular moment in Gme. Under full-­‐reserve banking, interest rates can be set by supply and demand
through the markets, with the banks acGng as intermediaries between savers and borrowers.
Re-­‐DistribuPon Of Wealth Upwards & Inwards
Because the enGre money supply is created as a debt by commercial banks, in effect interest must be paid to
the banks on every single pound of bank deposits that exists in the economy. A part of this interest is
redistributed back to depositors via interest on savings accounts, etc., but by far the bulk of it is distributed to
the workers of the banks, via salaries and bonuses. This creates three re-­‐distribuGon effects:
1. From the Poor to the Rich:
All money is created as debt by the banking system. This ships the ‘baseline’ of poverty down to zero
or negaGve, rather than a low but posiGve bank balance. Because it is those on below-­‐average
incomes that end up with much of the debt, they end up paying interest to the banking sector, in
effect meaning that the poor subsidise the middle class or rich.
2. From the ‘Real’ Economy to the Financial Sector
Businesses are also in a similar situaGon. The ‘real’ (non-­‐financial), producGve economy needs money
to funcGon, but because all money is created as debt, that sector will also end up paying interest to
the banks. This means that real-­‐economy businesses – shops, offices, factories, etc. – end up
subsidising the banking sector.
3. From the Rest of the UK to the City of London and the South East
Because this debt-­‐based system returns money to the banking sector, and the bulk of banking sector
salary payments are concentrated within the City of London, this means that there is a transfer of
income from the rest of the UK to the City of London and the South-­‐East.
All of these ‘re-­‐distribuGon effects’ are inherent to the system and will conGnue year aper year as long as the
money supply is issued by commercial banks as debt, via fracGonal reserve banking. Further research needs
to be done, but it is very possible that the ‘upwards-­‐and-­‐inwards’ redistribuGon of income caused by this
system of issuing money cancels out any downwards-­‐and-­‐outwards redistribuGon of income through the
welfare state. Looked at another way, the welfare state may only be necessary because of the design of the
banking system, and could be significantly scaled back if the method of creaGng money was reformed. This
should offer a significant opportunity to improve the fiscal posiGon of the government.
The Need for Deposit Insurance
Under fracGonal reserve banking, a bank will never have sufficient money at any one Gme to repay all its
demand liabiliGes (instant access accounts) simultaneously. This means that a ‘run on the bank’ can very
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