The existing money system is out of date.

In modern democratic societies, the value created by issuing new money should be a common, not a private, resource. New money should be put into circulation as public spending, not as profit-making loans by commercial banks. In Britain, the result would be equivalent to 12p off income tax. Other countries would benefit comparably.

In the information age, money has mainly become information, electronically stored and transmitted. Monetary policies that serve the public interest can no longer be founded on a smoke-and-mirrors fiction that “real money” lurks behind the information.

The authors propose a simple reform, and spell out its practicalities step-by-step. The economic, social and environmental arguments for it are very strong. The public purse, private households and businesses will all benefit from it.

How can the money system be made to work better? How can its workings be made less mysterious – easier for politicians and citizens to understand? This report gives the answers.

Download Creating New Money: A Monetary Reform for the Information Age

PDF format, 378KB, 107Pages.

Joseph Huber and James Robertson
New Economics Foundation
Cinnamon House, 6–8 Cole Street
London SE1 4YH, United Kingdom
Registered charity number 1055254
Tel: +44 (0)20 7407 7447
Fax: +44 (0)20 7407 6473
Web: www.neweconomics.org

CONTENTS
Chapter 1
A Monetary Reform for the Information Age 1
Chapter 2
Restoring Seigniorage: Implications for Public Finance
and Monetary Policy 8
2.1 Method of Issuing New Money 8
2.2 Government Spending 10
2.3 Government Borrowing 11
2.4 Taxation 13
2.5 Monetary Control and Inflation 14
2.6 Central Bank/Government Relations 17
Chapter 3
Restoring Seigniorage: Implications for Banking 20
3.1 Declaring Sight Deposits as Legal Tender 20
3.2 How to Stop the Creation of Sight Deposits
by Commercial Banks 22
3.3 Bank Customers’ Current Accounts 23
3.4 Banks’ Current Accounts and Balance Sheets 25
3.5 Central Banks’ Accounts and Balance Sheets 26
3.6 Only a Little “Big Bang” 29
Chapter 4
The Wider Case for Seigniorage Reform 31
4.1 A Principle of Equity and Justice 31
4.2 The Social Dimension 32
4.3 The Constitutional Dimension 34
4.4 Reducing Inflationary Tendencies 35
4.5 Greater Economic Stability 36
4.6 Safety and Stability of Money and Banks 38
4.7 Liberating the Real Economy 39
4.8 The Environmental Dimension 41
4.9 Transparency and Intelligibility 43
Chapter 5
Replies to Suggested Objections 44
5.1 Inflation 44
5.2 Nationalisation 44
5.3 A Tax on Money 44
5.4 Impact on Banking Services and Charges 45
5.5 Possible Loopholes: Minimum Notice Policy 46
5.6 Parallel and Unofficial Currencies 49
5.7 Electronic Money 52
5.8 Summing Up the Risks of Evasion 54
5.9 Supposed International Disadvantages 55
5.10 Towards International monetary Reform 56
Chapter 6
Prospects 59
6.1 Potential Opponents 60
6.2 Potential Beneficiaries 61
6.3 Trigger Issues and Events 62
6.4 Which Countries Could Take the Lead? 64
6.5 Why Now? 65
6.6 Constituencies for Change 66
Appendix
The Stock of Money: Today and After
Seigniorage Reform 68
A.1 Defining and Measuring Today’s Money Stock 68
A.2 Defining and Estimating the Money Stock After Seigniorage Reform 77
A.3 Estimating Today’s Special Banking Profits 79
A.4 Estimating Future Seigniorage, Now Foregone 81
Table 1: Synopsis of Monetary Terms, simplified 71
Table 2: Monetary Aggregates 73
Table 3: The Stock of Money in Circulation Recent growth of M1, today’s M, and M after seignorage reform, in the USA, Euro area, UK, Germany and Japan 85
Table 4: Seigniorage and Special Banking Profits from the Creation Of Money 89

ABOUT NEW ECONOMICS FOUNDATION
The New Economics Foundation (NEF) was founded in 1986 by the leaders of The Other Economic Summit (TOES), which has forced issues such as international debt on to the agenda of the G7/G8 summit meetings.

It has taken a lead in helping establish new coalitions and organisations, such as the Jubilee 2000 debt relief campaign, the Ethical Trading Initiative, backed by the Government and leading retailers, the UK Social Investment Forum and the Green Gauge “alternative” indicators of social and environmental progress.

NEF is a registered charity, funded by individual supporters, trusts, business, public finance and international donors, and acting through policy, research, training and practical initiatives to promote a “new” economy – one which is people-centred, delivers quality of life and respects environmental limits.

Its strategic areas currently include the global economy, corporate accountability, community finance and participative democracy. It is now recognised as one of the UK’s leading think-tanks.

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