nef (the new economics foundation) From Bank Debt to Mutual Credit or Money as a social technology Leander Bindewald nef (the new economics foundation) NICVA, Belfast, 13 st June 2014
Jan 11, 2015
nef (the new economics foundation)
From Bank Debt to Mutual Credit
orMoney as a social technology
Leander Bindewaldnef (the new economics foundation) NICVA, Belfast, 13st June 2014
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This presentation has been produced by the New Economics Foundation as part of the Community Currencies in Action (CCIA) collaboration project. CCIA is a transnational partnership working to develop and deliver community currency demonstrations in several member states across the North West of Europe. CCIA will lead the way in sharing knowledge and best practice to enable communities throughout Europe to grow stronger in their ability to achieve vibrant and prosperous networks that are efficient in delivering social, economic and environmental outcomes. CCIA will design, develop and implement community currencies across NW Europe; providing a rigorously tested package of support structures to facilitate the development of CCs across NWE and promote CCs as a credible (policy) vehicle for achieving positive outcomes. CCIA is part funded through the INTERREG IVB North West Europe (NWE) Programme, which is a financial instrument of the European Union’s Cohesion Policy - Investing in Opportunities. Find out more about CCIA on our website: www.communitycurrenciesinaction.eu
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From Bank Debt to Mutual Credit
1. What is money?
2. What is the role of Banks3. Where does money come from4. Problems with bank-debt money
5. What are Community Currencies?
6. What are the different concepts7. What are the advantages 8. Typical examples
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1. What is money?
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2. What do banks do?
Where did this money come from?
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2. What do banks do?
This is where money is created!
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Loan Agreement
I agree to repay the sum of
£ 10,000
with interest at 10%
Signed: A.
Customer
Customer’s
Bank Statement
Personal loan 10,000
Balance 10,000
DR CR
…and so is
thisThis is an
IOU…
3. Bank credit is money
…but this is
called money!
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Simplified bank balance sheet
Assets Liabilities
Central bank reserves
Bonds & other liquid assets
Derivatives
Customer loans
Government bondsEquity capital
Bonds in issue
Derivatives
Interbank borrowing
Deposits
Interbank lending
This is money
…and this is money
Cash
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Government bonds
The act of creating new money
Assets Liabilities
Bonds & other liquid assets
Derivatives
Customer loans
Equity capital
Bonds in issue
Derivatives
Interbank borrowing
Deposits
Interbank lending
STEP 1a: You sign a loan agreement with the bank. The bank now has a new asset.
STEP 1b: The bank credits your account, creating a new deposit, ie new money.
Central bank reserves
Cash
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The act of creating new money
Assets Liabilities
Bonds & other liquid assets
Derivatives
Customer loans
Equity capital
Bonds in issue
Derivatives
Interbank borrowing
Deposits
Interbank lending
STEP 2a: You spend the money (on whatever you borrowed it for)
STEP 2b: When you transfer your deposit, your bank transfers CB reserves to settle your payment with the other bank.
Central bank reserves
Cash
Government bonds
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The act of creating new money
Assets Liabilities
Bonds & other liquid assets
Derivatives
Customer loans
Equity capital
Bonds in issue
Derivatives
Interbank borrowing
Deposits
Interbank lending
STEP 3b: by borrowing on the interbank market
STEP 3a: At the end of the day the bank replenishes its reserves
Central bank reserves
Cash
Government bonds
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Inter-Bank Clearing
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Bank failure: solvency
Assets Liabilities
Bonds & other liquid assets
Derivatives
Customer loans
Equity capital
Bonds in issue
Derivatives
Interbank borrowing
Deposits
Interbank lending
If a bank makes too many losses on its assets (because the debtor defaults)…
It will wipe out its own capital, and become bankrupt.
Central bank reserves
Cash
Government bonds
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Bank failure: liquidity
Assets Liabilities
Bonds & other liquid assets
Derivatives
Customer loans
Equity capital
Bonds in issue
Derivatives
Interbank borrowing
Deposits
Interbank lending
If customers try to cash in their claims too quickly – ‘a run on the bank’
It will run out of reserves and will be broke
Central bank reserves
Cash
Government bonds
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Where does money come from?
“When banks make loans they create additional deposits for those that have borrowed” Bank of England (2007)
“In the Eurosystem, money is primarily created through the extension of bank credit… The commercial banks can create money themselves.”
Bundesbank (2009)
“When banks extend loans to their customers, they create money by crediting their customers’ accounts.”
Mervyn King (2012)
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Bank debt money
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4. Problems with Bank-Debt money
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Monopoly Bank Money
• One size does not fit all economic regions
• Interest and exchange rates favour the strongest
• Vital import/export balancing and competition effects are lost
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Professor, why did nobody notice?
“At every stage, someone was relying on someone else; and everyone thought they were doing the right thing”Professor of Economics Luis Garicano, London School of Economics in response to the Queen, November 2008
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Inequality through embedded interest
www.monneta.org
nef (the new economics foundation) www.egs.mmu.ac.uk
Low Diversity (Monoculture)
Low Interconnectivity
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www.PositiveMoney.org
Monetary Reform
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Who can create money?
Banks
created as interest-bearing debt by private banks
“The Ecology of Money” by Richard Douthwaite
People
based on “resources” and mutual agreement
Government
spent into circulation by state and collected as tax
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5. What are Complementary Currencies?
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High Diversity
High Interconnectivity
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“An agreement within a community to use something as a medium of exchange”
Bernard Lietaer
“Currency is any unit system, that facilitates collaboration in a community”
Currency = Social Technology
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Local exchange – backed by fiat currencies
Social exchange – time credits/hours
Economic exchange – Business Barter, Loyalty points
Environmental exchange – Reward Points, Carbon quotas
Community Currencies concepts
Learning/Awareness, “participate and feel empowered”
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Examples: Local Currencies
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Local Solution: Plugging the leaks
from: www.pluggingtheleaks.org
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Social Inclusion
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SME Credit Currencies
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Ecological Reward Points
www.e-portemonnee.be
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What is Bitcoin? – An Analogy
1922: “I heard it on the Radio”
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2012: “I paid for it with Bitcoin”
What does Bitcoin facilitate?
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CCIA: Implementation Framework
Overall aims
Project Plan
Stakeholders
Project specific objectives
Partners
End users
CurrencyModel
www.CCIA.eu
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www.CCIA.eu/ToC-Toolkit
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Want to know more?
http://www.neweconomics.org/issues/entry/community-currencies
www.community-currency.info
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“Money is not metal; it is trust inscribed”Niall Ferguson
Money - a Social Relationship