Peter J Morgan
BE (Mech.), Dip. Teaching – professional forensic engineer, retired economics, mathematics and physics teacher
Part 15 of 18
Here’s how a Sovereign Money system could be implemented in New Zealand:
1. The Reserve Bank of New Zealand (RBNZ) would modernise our existing (coins and notes) Sovereign Money to bring it into line with electronic transactions technology, by creating electronic cash as Sovereign Electronic Money for ‘we the people’ to use in addition to physical coins and notes, and in place of electronic bank-created debt money. The rationale for this is that bank deposits, which serve as the medium of exchange for more than 99% of our transactions by value, mostly transferred via EFTPOS and online banking, are created out of nothing by banks when they make interest-bearing loans, to the huge profit of banks, which of course charge interest on all of the money (bank deposits) that they so create. The present system is systemically unstable – as shown by the need during the GFC for taxpayer-funded bank bailouts, and more recently by the RBNZ’s introduction of Open Bank Resolution (OBR) regulations – which authorise any bank in financial strife to confiscate (steal) from its customers’ deposits to avoid its becoming insolvent.
2. The switch from bank-created debt as funny money, to Sovereign Electronic Money, would be achieved by removing the sight [i.e. call, or on-demand] deposits from the banks’ balance sheets and placing them onto the RBNZ’s balance sheet (in what would be called transaction accounts). The private banks would then obtain new liabilities, of the same size, to the RBNZ. Correspondingly, the RBNZ would acquire matching assets from the banks. Banks’ liabilities to the RBNZ would be required to be repaid as their assets matured, with the money repaid in this way to be recycled back into the economy by the RBNZ creating ex-nihilo new electronic money and gifting it to the government to be spent into circulation according to its democratic mandate.
3. To use Sovereign Electronic Money, each legal entity would need to have an account either with the RBNZ or with a fintec company (a financial technology company that would also be an electronic payment services provider) of their choice, and an EFTPOS card and online banking for that account. Fintec companies would compete with existing banks to offer payment services through their accounts at the RBNZ. The RBNZ would have on its balance sheet a record of all of the Sovereign Electronic Money it had issued, but only the transactions between entities having RBNZ Sovereign Electronic Money accounts would be recorded.
4. All electronic payments within New Zealand by all legal entities, including central and local governments, would henceforth be made in RBNZ Sovereign Electronic Money (RBNZ electronic cash).
5. Any central and local government borrowings would be exclusively in RBNZ electronic cash, from entities that are willing to lend at the interest rates, terms and conditions to which government is willing to agree.
6. Every month, the amount of RBNZ cash in circulation would be increased to match economic growth plus the target rate of inflation set by central government, so that the medium- to long-term rate of inflation could be easily kept within the government’s target range. The Money Creation Committee of the RBNZ would be empowered to create out of nothing all increases in the stock of RBNZ electronic cash, and gift it, free of interest and free of debt, openly and transparently to the government for disbursement according to the government’s democratic mandate. The contractors building our public infrastructure would be paid with interest-free electronic cash, created by the RBNZ. Our infrastructure dollars would go much, much further, as interest payments would be eliminated.
7. Banks would no longer have the right to create bank deposits when they granted loans, but would be restricted to loaning out only RBNZ Sovereign Electronic Money deposited with them by their customers in order to earn interest. Banks would thus become mere financial intermediaries, which is what banks have always proclaimed themselves to be, and is what every secondary school, polytechnic and university student who studies economics is taught that banks are (backed up by practically all economics textbooks – funny that!). Banks would take in RBNZ Sovereign Electronic Money from savers, aggregate it, and on-lend it at a margin to borrowers, earning an honest living in the process – exactly as most economics textbooks falsely say they do now! Banks would have to compete with fintec companies to borrow savers’ deposits. The monetary system would become systemically stable, facilitating steady economic expansion, with almost never a boom or a bust. Ordinary people would hardly notice that the banking and monetary system had been changed.
8. All financial institutions would be in free competition, on a level playing field, to attract both savers and borrowers. They would need absolutely minimal regulation. Interest rates would be set by the market without interference from government, and without interference from the independent government-owned RBNZ. No bank or any other financial institution would be too big to fail, and no bank failure could disrupt the payments system, as all entities’ payments would be made either in notes and coins, or Sovereign Electronic Money through the RBNZ payments system, via an entity’s chosen bank or Fintec company.
9. Just as is the case now, the New Zealand dollar would float, i.e. its exchange rates with other currencies would be freely determined in the forex markets. Exporters and importers, and indeed ordinary people in New Zealand, would hardly notice the switch to a full Sovereign Money system.
Drafts of legislation to institute a full Sovereign Money system in the UK and in New Zealand have already been written.
Those readers up for an intellectual challenge may wish to learn more about the Sovereign Money banking and currency system at www.sovereignmoney.eu and www.positivemoney.org and www.positivemoney.org.nz
All around the world, there is a revolt underway against ‘The Establishment’ and the controlling elites. We saw it right here in New Zealand, with the vast majority of New Zealanders being opposed to the TPPA, but having their democratic rights trampled on by a government determined to sign away even more of our sovereignty. We’ve seen it in the USA, with huge popular support for two anti-establishment people – Bernie Sanders (twice skittled by the elites of the Democrat Party) and the election of Donald Trump as president. We’ve also seen it in the UK, first with the ‘Brexit’ vote and then with the Boris Johnson/Conservative Party landslide 80-seat majority 12 December 2019 election victory. A growing number of ordinary people know that something is wrong with ‘the system’ and are ready to take action to fix it.
