THE FUTURE OF MONEY Bernard A. Lietaer - library.uniteddiversity ...

new money in the form of loans (see sidebar). If you understand this
'money alchemy' you have understood the most arcane secret of our
money system.
This is the convoluted mechanism by which the deal struck
between governments and the banking system is implemented, and
why 'your' money ultimately involves the entire banking system of
your country. Money and debt are therefore literally the two sides of
the same coin. If we all were to repay all our debts, money would
disappear from our world, because the entire process of money
creation illustrated in the 'money alchemy' would reverse itself.
Reimbursing all the loans (the left side of the graph in the sidebar)
would indeed automatically use up all the deposits (on the right
side). Even the central bank's high-powered money would evaporate
if the government were able to repay its debts.
‘Old ‘ and ‘New’ banking
In his classic book, The Bankers, Martin Mayer recounts the
following true story. A man was honoured for 50 years of loyal
service to a Virginia bank. At the party celebrating his long service,
he was asked what he thought had been 'the most important change
that he had seen in banking in this half century of service?' The man
paused for a few minutes, then went to the microphone and said 'air
conditioning'. In the sequel The Bankers: the New Generation, Mayer
notes: 'Twenty years later, this story is prehistoric. It's still funny, but
it's incomprehensible. In these twenty years, banking has changed
beyond recognition ...Almost nobody who has a job in a bank today
works as his predecessors worked as recently as twenty years ago.'
Banking has indeed changed more in the past 20 years than it has in
hundreds of years. The 1970 US bank holding company law still
defined a bank as an institution which 'agglomerates the transaction
balances of a community to lend it at interest to its commercial