Prof Dr Joseph Huber Chair of Economic Sociology, Em Martin Luther University Halle an der Saale...

Prof Dr Joseph Huber

Chair of Economic Sociology, Em

Martin Luther UniversityHalle an der Saale

Creating a Stable Monetary System.

The Case for Sovereign Money

Conference The Future of MoneyUniversity of Economics and Business

Athens, 24 Jan 2013

Current banking and debt crises are no single events, but latest links in a continued chain.

From 1970 to 2007 many crises happened on migratory hot spots around the world, intensifiying in number and gravity:

145 banking crises

208 currency crises

72 sovereign debt crises ______________________________________________

425 systemic financial crises

in addition now also including the subprime crisis, the US-EU bankingcrisis, and the PIIGS sovereign debt crisis. Further such mess upcoming.

Sources: Laeven/Valencia 2008, Reinhart/Rogoff 2009, Lietaer et al 2012 49–52. Bundeszentrale für Politische Bildung: http://www.bpb.de/wissen/DP0D1P. Kennedy 2011, 96.

Financial Crises Abound

Among the many factors held responsible, one is poorly understood and has so far been misjudged – the monetary system.

The monetary system as it stands today is a system of unrestrained credit creation by the banks on a fractional basis of central-bank reserves, called fractional reserve banking.

The financial causes of the crises have a common monetary cause: excessive credit creation within the system of fractional reserve banking.

Unrestrained credit creation within the system of fractional reserve banking inevitably feeds speculative bubbles, asset and consumer price inflation, financial-investment income at the expense of earned income, and results in over-indebtedness, particularly of governments and the banks themselves, with ensuing crises and loss of money and assets alike.

The misjudged factor – the monetary system

The financial system is plagued by malfunctions. It is the monetary system that is at the root of the problems.

Real Economy

Financial System

Monetary System

Money Governs Finance, Finance Governs the Economy

H

ierarchy o

f Contro

l

Hierarchy of Restrictions

Bank Balance SheetCustomer Assets Liabilities Debit

Credit

10.000 10.000 - 10.000+ 10.000

Claim on Liability Interest-bearing Credit as liquid

customer towards debt to the bankbank money

from credit customer (means of payment)

creation= claim on cash

Banks create credit (non-cash money) when they- make out loans and overdrafts- purchase assets such as bonds, stocks, real estate, …

Accounting record: Bank Credit/Securities/Tangibles Account to Customer Current Account

Uno-Actu-Identity of Credit Creation and Money Creation

(demand deposits) by ledger entry2

In order to create 100 units of demand deposits, the banking sector needs fractional 'coverage' in central-bank money of about 2,5% - composed of

• 1,4% cash (coin and banknotes) for the ATMs• 0,1% liquid reserves for settlement of daily clearings• 1,0% obligatory minimum reserve (of no use at all)

Put as banks' money multiplier: Bank money, i.e. demand deposits created

by the banking sector = 900 times liquid reserves= 73 times cash

Today's money supply M1 (currency in circulation) consists of

80–95 % bank money on current account (demand deposits)

5–20 % sovereign money (state money in the form of coin, banknotes, and liquid central-bank reserves) – though not even this put

into circulation by sovereign supply initiative, but by banking demand pull for fractionally re-financing themselves).

Fractional Reserve Banking

i.e. Multiple Credit Creation on a Fractional Basis of Reserves

Data: Swiss National Bank, Historical Time Series, No.1, Feb 2007, 1.3, 2.3

M1 Bank Money (demand deposits) vs Cash

Customer A 20 kCustomer B 30 k

15 k Customer OCustomer C 25 k

30 k Customer P30 k Customer Q

Bank X itself 15 k10 k Bank Y itself

90 k 85 k

= 5 k Bank Y

Bank X

Cashless transactions by (1) clearing of customer accounts and (2) settlement of bank accounts in reserves

Settlement in inter-bank credit/debit or central bank reserves

Clearing

1) Market volume = preparedness to go into debt = potential of demand for securities and credit (loans)

2) Expansion/Contraction of credit in step throughout the

banking sector, domestic and international (thus ensuring near-balance of in- and outflows within the system) 3) Size of banks. For large banks it is much easier to extend their balance sheet than for smaller banks4) Obligatory minimum reserves5) Capital adequacy according to Basel rules (assets-to-equity-

ratio or loan-to-equity-ratio)6) Liquidity rules (liquid and near-liquid assets must be equal to

or bigger than overnight liabilities)

Short-Term Restrictions to Credit Creation out of Thin Air

In the longer term there are no restrictions. By crediting/debiting, buying/selling, paying out/taking in relative simultaneously, banks mutually create all of the required assets and equity they need.

after H.Seiffert, Geldschöpfung, Nauen 2012, 78-97.

3. Cash (coin, notes) as a residual sub-quantity of the money in circulation, exchanged out of account, or back onto account .

Central Bank Customers - private Haushalte - companies, organis. - public households

Banks

Monetary and Financial Institutions

Split Circulation of Money

1. Interbank circulation

ofreserves (on account)

2. Customer circulation (nonbank) of bank money (on account)

CashIssue

CashExchange

Data: http://epp.eurostat.ec.europa.eu/portal/page/portal/national_accounts/data/database

M1/GDP (Marshallian 'K') European Monetary Union Increase 1995–2010

Banks' money creation is out of control, the money supply wildly overshooting.

Banks' money creation is out of control, the money supply wildly overshooting.

Data: http://www.bundesbank.de/statistik/statistik_wirtschaftsdaten_tabellen.php#wirtschaftsentwicklung

Marshallian 'K' Germany (M1/GDP) 1950–2010

http://www.bundesbank.de/statistik/statistik_wirtschaftsdaten_tabellen.php#wirtschaftsentwicklung

European Monetary Union 1995–2008

M1 189 % ~6/8 ~3/4

GDP nominal (price-inflated) 51 % ~1/8

GDP real (price-deflated) 23 % ~1/8

United States increase last ten years

M2 (broad liquid money) 80 % ~ 2/5

GDP nominal (price-inflated) 45 % ~ 2/5

GDP real (price-deflated) 16 % ~ 1/5

The Monetary Cause of Financial Causes

of the current crises:

Overshooting Money Supply from Fractional Reserve Banking,

i.e. Multiple Credit Creation on a Fractional Basis of Reserves

Sources: www.federalreserve.gov/releases/h6/hist; www.bundesbank.de/statistik/zeitreihen; Data: http:// epp.eurostat.ec.europa.eu/portal/page/portal/national_accounts/data/database: Bundesbank, Monthly Bulletins, tables II.2.

There are two main channels through which an expansion of banks' balance sheets,

i.e. expansion of the money supply, contributes to credit bubbles, financial asset

bubbles, and over-indebtedness of actors involved, including market 'exuberance'

and asset price inflation.

- bank credit (additional creation of money) for direct leverage of financial-market

investment in stocks, real estate, derivates, foreign exchange, private equity (e.g.

hostile leveraged buy-outs most of which are credit-funded)

- bank credit (additional creation of money) for funding public debt, i.e.

buying sovereign bonds by paying with newly created demand deposits.

The volume of sovereign bonds and bills is nothing but just another bubble, in

fact the biggest bubble of all.

Excessive Credit Creation, i.e. money-printing by the banks,

results in Inflation and Asset Inflation.

Expansion of bank money

as leverage forpaper investmentin financial assets

FAZ 10.5.11, 9

Taken from The Economist

MFIs going in debt (ever higher leverage)

Accumulation of sovereign debt in industrially advanced countries

USA 1940-2010 (Bln US-Dollar)

Japan 1950-2009 (Bln Yen)

Who profits from government debt, as long as governments are able to pay?

Banks 50 – 60 %

Funds and Insurance Companies(in UK and elsewhere also pension funds) 30 – 35 %

Private Households(Italy, Japan more than elsewhere) 7 – 16 %

Government Debt = Interest-Bearing Assets (Gov Bonds & Bills)

55%33%

12%

Ownership of Public Debt in Europe

Banks domestic and foreign

Funds, Insurance

Private Households

Source: ECB, Monthly Bulletins, Table 6.2.1

Any current income (taxes, labour, interest and payback of pricipal)

has to be paid out of current proceeds from GDP – or additional

debt.

If interest-bearing monetary and financial assets grow dispropor-

tionately higher than GDP, this will lead to a disproportionately

growingshare of income from financial investment, or interest

respectively, and correspondingly involve a declining share of

earned income.

Shift in Income Distribution – to the Benefit of Financial Income

at the Expense of Earned Income

Decline of Earned Income, Growing Share of Financial Income

Economist 21 Jan 2012, 47

Increase of Financial Income to the Detriment of Earned Income

The financial causes of the crises have a common monetary

cause: excessive credit = money creation. Financial markets cannot

work properly on the basis of a malfunctioning monetary system.

For sorting out banking and financial markets, one has to come to

grips with the money system.

Measures of banking and financial reform can hardly be successful

unless based upon a reform of the underlying money system.

see again figure

The Case for Monetary Reform.Transition from banks' money surrogate (demand deposits) to

plain sovereign currency

Real Economy

Financial System

Monetary System


H

ierarchy o

f Contro

l


Obtaining full control of the money supply (M-to-GDP ratio)

Control of inflation and asset inflation (asset/debt-to-GDP

ratios)

Hence,

reintroduce plain sovereign currency in order to

reestablish the monetary prerogative as a sovereign right of

constitutional importance, comparable to the state

monopolies on legislation, public administration, jurisdiction,

taxation, and

the use of force)

The Case for Monetary Reform – Goals

Sovereign money = chartal or state money.

E.g., coin (issued by the treasury) and banknotes (issued by the

central bank) are sovereign money.

Demand deposits are private bank money.

A money reform today does with digital money on account the same

that was done with private banknotes in the 19th century, when

private banknotes were phased out in favour of the state or central-

bank monopoly on banknotes such as it exists today.

The Case for Monetary Reform.Transition from banks' money surrogate (demand deposits) to

plain sovereign currency

1. Restoring monetary sovereignty, and sovereign money respectively: ensuring the full state prerogative of

determining the currency of the realm (unit of account) creating the currency (= money in circulation = legal tender), including coin, banknotes, as well as digital currency (e-

money) on account and on mobile storage media obtaining full seigniorage from the issuance of money.

2. Independent Monetary Authority: Conferring responsibility for the

entire stock of money to an independent monetary authority (in Europe the central banks, the ECB resp., under public law)

3. No more bank money: Putting an end to the creation of bank money (demand deposits) which is credited into current accounts on a

basis of fractional reserves

4. Full seigniorage to the benefit of the public purseby spending new money into circulation through public

expenditure (genuine seigniorage), or by loaning it to banks (interest-borne seigniorage).

Key Components of a Sovereign Money Reform

Extension of the monopoly on coins and banknotes to money on account and on mobile devices. From a set date on, the central bank has the exclusive right to create and put into

circulation the entire stock of money (currency, legal tender). Amendment of Art.128 TFEU, Art.16 ECB/ESCB Statutes.

Taking customers' current accounts off the banks' balance sheet, thus putting an end to banks' ability to create demand deposits.

This is no nationalisation of banks and credit. Banks continue to be free market enterprises. The reform is just about renationalising the money.

Overnight liabilities to customers are redeclared to be liabilities to the central bank, getting out of the books to the extent that

outstanding old customer loans are repaid and the money passed on to the central bank – where it is formally extinguished and replaced with

newly issued plain money.

Main Measures to be Taken for a Transition to Plain Sovereign Money

Revision of Art. 123 (1) TFEU (Prohibition for ECB/NCBks to

directly contribute to funding government budgets). Central Banks shall be

- not just lender of last resort for the banks, but also for the state

- not just re-active issuer of least reserves in re-financing the banks,

but pro-active issuer of first instance, in fact the sole issuer of money

- acting not just as the bank of banks, but again as the bank of the state.

Central banks will thus be upgraded in formal status, becoming de facto

what they are already supposed to be de jure, i.e. an independent

monetary state authority (in a sense analogous to the judiciary) with

full control of the money supply – a function they now cannot fulfill

because under fractional reserve banking the banks have largely

usurped the state prerogatives of money creation and seigniorage.

Main Measures to be Taken for a Transition to Plain Sovereign Currency

www.monetative.de

www.vollgeld.ch

www.positivemoney.org.uk

www.monetary.org (USA)

www.positivemoney.org.nz

www.sensiblemoney.ie

www.monetaproprieta.it

A transition from bank money to sovereign money

involves a minimum of institutional change . It leaves most

structures intact and banking practices unchanged.

It keeps the advantages of the present system, such as e.g.

• sufficient and flexible money supply (only a partial reality today)

• affordability of credit

• maturity transformation

• easy money transfer (payment systems) both domestically

and internationally

• full convertibility of the currency

In addition it comes with five more important advantages

Advantages of Plain Sovereign Money

1. Money-on-account cannot disappear and is thus safe. In a banking crisis, the payment system is no longer at stake. In so far, government and society aren't susceptible to banking blackmail any more.

2. Money supply under effective control. No more inflationary bank-money supply. Monetary inflation close to zero possible.

3. No more procyclical overshooting, or undershooting, of money supply. More steady flow of money and capital. Business and financial cycles more moderate. No more additional 'money fuel' for speculative leverage.

4. Full regular seigniorage to the benefit of the public purse (annualy about 1–4 % of total public households, depending on country and growth). Banks' margin extra profit and privileges from credit creation abolished.

5. One-off transition seigniorage. Allows for a 50–100 % redemption of public debt within two to four years (dependending on country).


Regular Annual Seigniorage as an Addition to the Stock of Money

Billion SFr

Billion €

BIP

(memo)

M1 Seigniorage approx.

M1 at

BIP 1-2-3 %

Total public

expenditure

M1 as a % of total

public expenditure

Greece 215 96 1.0 – 1.9 – 2.9 108 1.0 – 1.8 – 2.7 %

EU-17 9.347 4.786 48 – 96 – 144 4.652 1.0 – 2.1 – 3.1 %

Germany 2.477 1.383 14 – 28 – 42 1.164 1.2 – 2.4 – 3.6 %

Austria 301 141 1.4 – 2.8 – 4.2 153 1.0 – 1.8 – 2.7 %

Switzerl. 568 463 4.6 – 9.3 – 13.9 189,2 2.4 – 4.9 – 7.4 %

Figures available for 2011. Quellen: European Central Bank, Monthly Bulletin, Tables 2.3.1+2 (www.ecb.int). -Deutsche Bundesbank, Monatsberichte, Tabellen II.1+2 (www.bundesbank.de). - Österreichische Nationalbank, Statistik und Meldeservice, http://www. oenb.at/de/stat_melders/statistik_und_melderservice.jsp - Schweizerische Nationalbank, Statistische Monatshefte, Tab. A2, B2. - http://www.bankofgreece.gr/Pages/en/Statistics/monetary/ nxi.aspx

Billion €Billion SFr

A1CustomerDemandDeposits

A2InterbankDemand Deposits

A3ReservesBks with

CentralBk

AM Stocks

to be replaced

BTotal

Public Debt A/B

2009 EU17GerACH

3.7441.014

111336

312129

22116

369112

3545

4.4251.255

168497

7.1201.767

191209

62 %71 %88 %

238 %

2010 EU17GerACH

3.9121.109

112386

359135

19123

317146

3938

4.5881.390

170547

7.7962.056

206209

59 %68 %83 %

262 %

2011 Gree EU17

Ger

753.9431.170

~8390115

~12*637*

121

954.9701.406

2808.2192.088

34 %61 %67 %

* Untypical effect through QE. Sources: Europäische Zentralbank, Monthly Bulletins, Tab. 2.3.2 (SightDepos), 2.5.1 (Interbk Deposits), 6.2.1 (Public Debt). - Deutsche Bundesbank, Monatsberichte, Tab. II.2+3 (Sichteinl), IV.3 (Interbk-Sichteinl), III.2 (Reserven EU+D), IX.1 (Staatsschulden). – Österreichische Nationalbank, Statistiken, Daten & Analysen, Tab. 1.1.2 (Reserven), 7.24.1 (Staatsschuld), 3.3.1–3 (Zwischenbankforderungen) - AK Österreich, Wirtschafts- und Sozialstatistisches Taschenbuch 2011, Tab. Geschäftsstruktur der inländischen Kreditinstitute (Zwischenbank-forderungen). - Schweizerische Nationalbank, Statistische Monatshefte, Tab. A1.17, A2, B2. - SNB, Die Banken in der Schweiz 2010, Tab. 18 Passiven. - Statistik Schweiz/Bundesamt für Statistik, http://www. bfs.admin. ch/bfs/portal/de/ index. Eidgenössische Finanzverwaltung, Finanzstatistik der Schweiz 2010, 3. - Eurostat Statistical Books, Government Finance Statistics, 2012

One-off Transition Seigniorage EU-17, Gr, D, A, CH

Under given circumstances there is no smooth way out of the present banking and sovereign debt crisis of the old-industrial world.

Under prevailing conditions, overcoming the crisis unavoidably includes - creditor write-downs (haircuts) to an important extent - inflation and/or negative interest (real interest rate below inflation rate)- austerity regimes (strangling the economies, increasing unemployment and impoverishment ).

A transition to plain sovereign money, by contrast, would actually make for a smooth ending of the banking and debt crisis – neither requiring austerity regimes, nor inflation or negative interest, nor creditor haircuts.

It is difficult to understand why those in charge do not embrace this opportunity.





Creating a Fair and Stable Monetary System.



Athens, 24 Jan 2013

Keep to the law: No Bail-out (Art.125 TFEU)

Value adjustment of sovereign debt (in fact debt haircut) by markets. Accept insolvency of affected states.

Systemically relevant creditor banks (some of the 90 out of 8.300 banks in the EU) which were possibly threatened by bankruptcy could have been stabilised through bail-in and government partici-pation in banks' equity (= partial nationalisation). Insolvent govern-ments could have obtained necessary means from other euro

member countries (≠ bail-out).

In the federal structure of the U.S. there are no bail-outs. Insolvent States or municipalities cannot claim 'solidarity' from outside.

External help, though, may come from stimulus plans and recuperation aid.

Euro Sovereign Debt Crisis. What should have been done (1)

Insolvent debtors face a difficult period of time anyway. Imposed austerity to the single-side befenit of creditors causes sharply shrinking economies and purchasing power, increasing unemployment and impoverishment, and is certainly the worst option of all.

A sovereign debt crisis is not to be equated with a currency crisis. Possible insolvency of some nation-states would not have resulted in a an existential crisis of the euro. Public insolvencies in the U.S. never aroused concern about the U.S. dollar.

Probably transitional devaluation of the euro of about 20–35 % for about one to three years. Not too tremendous a problem. The 'euro crisis' is a pressure pretext to be bailed out.

Euro Sovereign Debt Crisis. What should have been done (2)

Pro

Return to former national currency would result in a low valuation (devaluation respectively) of the new national currency. This creates a strong advantage of international cost competitiveness.

If the return to a national currency is combined with an imposed reduction, or even cancellation of all claims and debts in euro, this would result in a relief of total national debt, i.e. getting things straight for a new beginning

… though, of course, at the expense of domestic and foreign creditors, which

is where trouble comes in …

Leaving the euro. An option worth considering?

Contra

If not combined with reduction or cancellation of national debt, a return to the national currency would actually worsen the burden of foreign debt.

If combined with imposed debt relief, this causes massive damage to/problems for domestic creditors and investors. Lack of financial resources. Credit drought and investment restraint. As a result, shrinking economy in spite of

debt relief, and maybe political unrest.

Long-winded legal disputes over contract violations.

Massive flight from the new currency. Another drain on foreign reserves.

Due to lack of foreign reserves imports would stay below what is required. Remaining imports would trigger (imported) inflation.

Equally, internationally active firms would face difficulty in meeting their obligations. Thus many firms threatened in their existence.

Incoming foreign direct investment would be low, or fail to materialise at all.

Foreign credit would be obtained under unfavourable conditions only, and come with exchange-rate risk and new dependency on foreign creditors.

All things considered … leaving does not really look like a good bargain.

Leaving the euro. An option worth considering?







Athens, 24 Jan 2013

Disproportionate Growth of Monetary Assets and Financial Asset Bubbles

Financial assets / BIP ≈ 335 per cent Financial assets / GDP ≈ 1.000 per cent

Plain Sovereign Currency

In German- Vollgeld (fully valid legal tender), term well established by now

Wording in English not settled yet:- Plain money- Sovereign money, sovereign currency- State money- US money (American Monetary institute)

Not to be confounded with Full-reserve approaches: - 100%-money (I.Fisher)- 100% reserve-covered bank money (Chicago Plan)

The Plain Money Approach has and further developed together first been published in 1998 with James Robertson in 2000

on behalf of the New Economics Foundation, London. Several translations. Available at http:// www.monetative.de/wp-content/uploads/creating-new-money-original-version-2000.pdf

Currency-School Policy Banking-School PracticesMoney

is state currency, a legally well-defined 'token' (coin, banknote, electronic unit on account or on memory chip).Distinction between money and credit.

issued on the basis of a state prerogative by a public authority, e.g. the national central bank, or currency board, or parliament, or ministry of finance.

circulates as fully valid legal tender.

Quantity of money in circulation results from market demand and the authority's discretion to provide money, whilst taking into account actual economic growth potential as well as consumer and asset prices.

Money

emerges from market convention. Anything you (or rather banks) like can serve as a means of payment.

is bank money (= credit), formerly issued as private banknotes, nowadays as demand deposits; i.e. a money surrogate, quasi money. which is used as if it were chartal money, although it is just a claim on chartal money.

is based on a fractional reserve of about 2% cash and 5% operational balances.

Quantity of bank money in circulation results from market demand and banks' private business policy.

The most important historical precursor of current monetary reform programs is

Full-reserve banking, in particular100%-banking (Chicago plan, Henry Simons, Frank Knight, Milton Friedman) 100%-money (Irving Fisher 1934)

Basic principle: 100% reserves on all overnight or demand or transaction deposits, thus inhibiting fractional reserve banking, or multiple credit creation respectively.

Another current proposal is

Limited Purpose Banking (Lawrence Kotlikoff 2010)

Basic principle: All demand deposits as well as savings and other investment deposits are run as mutual funds. Demand deposits are converted into Cash Mutual Funds. New additional money exclusively issued by a government authority. Banks could no longer issue means of payment, not even debenture certificates or bonds, or other securities (which would be the business of loan and investment funds). Banks would be mere intermediaries without any proprietary business.

Related Monetary Reform Approaches

Sovereign Currency System Full Reserve System

Chartal currency units (cash and non-cash) are fully valid legal tender in and of themselves .

Other terms proposed:

Plain money Genuine moneyPositive moneyU.S. money

Reserves in traditional sense rendered obsolete.

Transition smooth. Everyday operations easy.

100% reserve-covered bank money

is bank money (demand deposits) fully covered by reserves with the central bank.

Even if not fractional, still a reserve system with split circulation (inter-bank vs public) and intertwining of customers' and banks' accounts.

Banks keep the initiative. Liabilities, not credits, would have to be covered - ex post for weeks or months.

Transition fraught with problems. Everyday operations unnecessarily complicated.

100%-banking, 100%-money, full-reserve banking

In certain details – regarding monetary theory and policy, institutional and market arrangements, and technicalities – full-reserve approaches are different from current reform approaches. Questions at issue include:

Notion of money: Cash as 'actual physical money' as if it still were gold and silver. No clear notion of non-cash book money or digital money. Not clear about the difference between money and credit (debt).

Divergent understanding of the function of deposits and monetary aggre-gates: Deposits in M2/M3 are supposed to be used to make out loans; which, at best, is true just to a fractional degree. Most of the deposits in M2/M3 are simply inactivated bank liabilities to customers.

Retaining the reserve system with split interbank circulation and public circulation is unnecessarily complicated and costly. Problem of interbank demand deposits not recognised. Customers still won't have digital money on a money account of their own, separate from bank accounts.


100%-banking, 100%-money, full-reserve banking (cont.)

100% reserve requirements are derived from the aggregate liability side of a bank's balance sheet (ex post); not ascribed to the asset side when a bank is making out a loan (which would require loans to bepre-financed at 100%).

Unresolved problems of transition: How should banks acquire enough and acceptable bills of exchange and securities for a 100% pre- or re-financing of their loans? By uncovered central bank credit?, or give it as a state present to the banks?

If the transition is achieved gradually, by spending new demand deposits into circulation in parallel with new reserves by way of government expenditure, before discontinuing banks' multiple credit creation, this would backfire and in effect greatly augment the banks' operational reserves and thus the money multiplier for credit creation.


Auch am Ansatz des

Limited Purpose Banking LPB (all-in-funds approach)

Various of aspects in need of explanation, e.g.

● author says LPB fulfills same function as 100% banking. He nevertheless requires 100% reserve holdings on all units in Cash Mutual Funds? Why? Is the reserve system abolished or retained?

● Customers still do not have digital money in a money account of their own. The money is in a collective fund. What the customer has are credit items representing shares of the Cash Mutual Fund.

● LPB possibly not flexible enough for overdraft (swing).

● LPB might appear to experts and lay persons alike even more alien than 100%-money or plain money. Thus less cummunicable.

● Interdiction of any proprietary dealings whatsoever and 'degradation' of banks to mere fund managers (cash funds, loan funds, security funds) might affect acceptability of the concept of LPB.

● Bankers (as fund managers) continue to decide on granting loans, buying/selling equity, bonds, etc., whereas the risk entirely remains with the creditors (investors). This is not the answer to the problem of 'too big to fail' which it claims to be.

Transition from Demand Deposits to Plain Money

Real Economy

Financial System

Monetary System


Hierarch

y of C

ontrol








Athens, 24 Jan 2013

Prof Dr Joseph Huber Chair of Economic Sociology, Em Martin Luther University Halle an der Saale...

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