Thursday, December 17, 2015

Ellen Brown on alternative ideas for banking

Tony summed it up best in last Sunday's post when confessing he had been wrong (he had been low on his earlier estimates) about the $100 Trillion needed for a serious attempt at a meaningful fix for climate change.
We, really, really need to break through these psychological and ideological barriers that are preventing us from doing what needs to be done to save this planet. We have the technology. In hand. Ready to go.

All we need is the money.
Except for that "tiny" detail, we are ready to rock and roll.  "Tiny" my frog-belly-white butt.  To maintain the status quo, the banksters have in just the past 40 years resorted to industrial sabotage, military coups, crushing austerity measures, the wholesale corruption of the economics profession, and the bankrupting of whole nations—to mention just a few of the measures the monetarists and neoliberals have been willing to employ to keep a grip on their awesome power.  In fact, my calling these slime "banksters" is such a massive understatement that it borders on adorable.

So it entirely possible that we as humans will allow arguably the most incompetent "profession" on earth to demand we do nothing meaningful about an impending calamity like climate change.  In the meantime, the rest of those who think about monetary matters are dusting off some of the ideas that have worked in the past.  Here Ms. Brown describes some of them.  (Of course, the world's central bankers could always do the right thing by the real economy and avoid all these challenges to their rule.  And with a large enough power source and control surfaces, it is also possible to make pigs fly.)

Reinventing Banking: From Russia to Iceland to Ecuador


Global developments in finance and geopolitics are prompting a rethinking of the structure of banking and of the nature of money itself. Among other interesting news items:

* In Russia, vulnerability to Western sanctions has led to proposals for a banking system that is not only independent of the West but is based on different design principles.

* In Iceland, the booms and busts culminating in the banking crisis of 2008-09 have prompted lawmakers to consider a plan to remove the power to create money from private banks.

* In Ireland, Iceland and the UK, a recession-induced shortage of local credit has prompted proposals for a system of public interest banks on the model of the Sparkassen of Germany.

* In Ecuador, the central bank is responding to a shortage of US dollars (the official Ecuadorian currency) by issuing digital dollars through accounts to which everyone has access, effectively making it a bank of the people.

Developments in Russia

In a November 2015 article titled “Russia Debates Unorthodox Orthodox Financial Alternative,” William Engdahl writes:

A significant debate is underway in Russia since imposition of western financial sanctions on Russian banks and corporations in 2014. It’s about a proposal presented by the Moscow Patriarchate of the Orthodox Church. The proposal, which resembles Islamic interest-free banking models in many respects, was first unveiled in December 2014 at the depth of the Ruble crisis and oil price free-fall. This August the idea received a huge boost from the endorsement of the Russian Chamber of Commerce and Industry. It could change history for the better depending on what is done and where it further leads.

Engdahl notes that the financial sanctions launched by the US Treasury in 2014 have forced a critical rethinking among Russian intellectuals and officials. Like China, Russia has developed an internal Russian version of SWIFT Interbank payments; and it is now considering a plan to restructure Russia’s banking system. Engdahl writes:

Much as with Islamic banking models that ban usury, the Orthodox Financial System would not allow interest charges on loans. Participants of the system share risks, profits and losses. Speculative behavior is prohibited . . . . There would be a new low-risk bank or credit organization that controls all transactions, and investment funds or companies that source investors and mediate project financing. . . . Priority would be ensuring financing of the real sector of the economy . . . .

On September 15, 2013, Sergei Glazyev, one of Vladimir Putin’s economic advisers, presented a a series of economic proposals to the Presidential Russian Security Council that also suggest radical change is on the horizon. The plan is aimed at reducing vulnerability to western sanctions and achieving long-term growth and economic sovereignty.

Particularly interesting is a proposal to provide targeted lending for businesses and industries by providing them with low-interest loans at 1-4 percent, financed through the central bank with quantitative easing (digital money creation). The proposal is to issue 20 trillion rubles for this purpose over a five year period. Using quantitative easing for economic development mirrors the proposal of UK Labour Leader Jeremy Corbin for “quantitative easing for people.”

William Engdahl concludes that Russia is in “a fascinating process of rethinking every aspect of her national economic survival because of the reality of the western attacks,” one that “could produce a very healthy transformation away from the deadly defects” of the current banking model.

Iceland’s Radical Money Plan

Iceland, too, is looking at a radical transformation of its money system, after suffering the crushing boom/bust cycle of the private banking model that bankrupted its largest banks in 2008. According to a March 2015 article in the UK Telegraph:

Iceland’s government is considering a revolutionary monetary proposal – removing the power of commercial banks to create money and handing it to the central bank. The proposal, which would be a turnaround in the history of modern finance, was part of a report written by a lawmaker from the ruling centrist Progress Party, Frosti Sigurjonsson, entitled “A better monetary system for Iceland”.

“The findings will be an important contribution to the upcoming discussion, here and elsewhere, on money creation and monetary policy,” Prime Minister Sigmundur David Gunnlaugsson said. The report, commissioned by the premier, is aimed at putting an end to a monetary system in place through a slew of financial crises, including the latest one in 2008.

Under this “Sovereign Money” proposal, the country’s central bank would become the only creator of money. Banks would continue to manage accounts and payments and would serve as intermediaries between savers and lenders. The proposal is a variant of the Chicago Plan promoted by Kumhof and Benes of the IMF and the Positive Money group in the UK.

Public Banking Initiatives in Iceland, Ireland and the UK

A major concern with stripping private banks of the power to create money as deposits when they make loans is that it will seriously reduce the availability of credit in an already sluggish economy. One solution is to make the banks, or some of them, public institutions. They would still be creating money when they made loans, but it would be as agents of the government; and the profits would be available for public use, on the model of the US Bank of North Dakota and the German Sparkassen (public savings banks).

In Ireland, three political parties – Sinn Fein, the Green Party and Renua Ireland (a new party) — are now supporting initiatives for a network of local publicly-owned banks on the Sparkassen model. In the UK, the New Economy Foundation (NEF) is proposing that the failed Royal Bank of Scotland be transformed into a network of public interest banks on that model. And in Iceland, public banking is part of the platform of a new political party called the Dawn Party.

Ecuador’s Dinero Electronico: A National Digital Currency

So far, these banking overhauls are just proposals; but in Ecuador, radical transformation of the banking system is under way.

Ever since 2000, when Ecuador agreed to use the US dollar as its official legal tender, it has had to ship boatloads of paper dollars into the country just to conduct trade. In order to “seek efficiency in payment systems [and] to promote and contribute to the economic stability of the country,” the government of President Rafael Correa has therefore established the world’s first national digitally-issued currency.

Unlike Bitcoin and similar private crypto-currencies (which have been outlawed in the country), Ecuador’s dinero electronico is operated and backed by the government. The Ecuadorian digital currency is less like Bitcoin than like M-Pesa, a private mobile phone-based money transfer service started by Vodafone, which has generated a “mobile money” revolution in Kenya.

Western central banks issue digital currency for the use of commercial banks in their reserve accounts, but it is not available to the public. In Ecuador, any qualifying person can have an account at the central bank; and opening one is as easy as walking into a participating financial institution and exchanging paper money for electronic money stored on their smartphones.

Ecuador’s banks and other financial institutions were ordered in May 2015 to adopt the digital payment system within the next year, making them “macro-agents” of the Electric Currency System.

According to a National Assembly statement:

Electronic money will stimulate the economy; it will be possible to attract more Ecuadorian citizens, especially those who do not have checking or savings accounts and credit cards alone. The electronic currency will be backed by the assets of the Central Bank of Ecuador.

That means there is no fear of the bank going bankrupt or of bank runs or bail-ins. Nor can the digital currency be devalued by speculative short selling. The government has declared that these are digital US dollars trading at 1 to 1 – take it or leave it – and the people are taking it. According to an October 2015 article titled “Ecuador’s Digital Currency Is Winning Hearts!”, the currency is actually taking the country by storm; and other countries in Latin America and Africa are not far behind.

The president of the Ecuadorian Association of Private Banks observesthat the digital currency could be used to finance the public debt. However, the government has insisted that this will not be done. According to an economist at Ecuador’s central bank:

We did it from the government because we wanted it to be a democratic product. In any other countries, [digital currency] is provided by private companies, and it is expensive. There are barriers to entry, like [expensive fees] if you transfer money from one cellphone operator to another. What we have here is something everyone can use regardless of the operator they are using.

Banking Moves into the 21st Century

The catastrophic failures of the Western banking system mandate a new vision. These transformations, current and proposed, are constructive steps toward streamlining the banking system, eliminating the risks that have devastated individuals and governments, democratizing money, and promoting sustainable and prosperous economies.

They also raise some provocative questions:

* Would issuing “quantitative easing” to the tune of 20 trillion rubles for Russian development and trade trigger hyperinflation?

* Could merging the Iceland version of the Chicago Plan with a public banking initiative return the power to create money to the public without collapsing credit?

* How does the Ecuadorian national digital currency mesh with the “war on cash” underway in Europe?

These and related questions will be explored in later articles. Stay tuned. more


  1. I agree we need a breakthrough. I agree we (might) have the technology in hand ready to go, “to save this planet.” But I can’t agree that “all we need,” then, “is the money” to do it. That would mean if the money was granted (and fought over of course as usual how to spend it) it may or may not be enough to save the planet but it will certainly be enough to keep the money game going. So when it comes to dealing with anything “bigger than a bread box,” I believe money actually becomes the problem not the solution. Money, as a unit of exchange for small transactions, yes (it can come in handy). Money as a determining factor of anything really big and important, no. Money markets and capitalism (also known as commerce with competition rather than cooperation as a general rule) is what has led us to our present planetary predicament. Are we obligated to go over the edge of our predicament with our leaders because they would rather dodge than deal with a future that requires them to lead us beyond money, markets, and capitalism in the distant future? I say bye, bye, leaders.

    Climate change, nuclear disarmament, inter-and-intra-national disunity everywhere and corporate psychopaths out of control everywhere else, can’t wait for us to try what I believe is our best chance to save the planet (a simple idea they could have agreed to in Paris if they weren’t such cowards and could have declared that): From “this” day forward (pick a date) it “shall” be enforced that all allowable ways of living on earth from now on “shall” no longer be about making money (per se) but learning how to live together and share equitably the abundance of the earth. Furthermore, all money making schemes and excuses for bad behavior on earth from now on “shall” no longer be allowed; all remaining fossil fuels “shall” remain in the ground; all commercial airlines “shall” be grounded; all fossil fuel burning engines and generators of all kinds “shall” only be used for emergencies anymore as the entire world “shall” go into an emergency “Crash Dive” transition to “Zero Emissions,” ASAP. And meanwhile, in transition to “Zero,” all essential services “shall” remain open full-time, full-service, 24-7, and “shall” be enhanced and reinforced by the many millions of people thrown out of work by this degree, who “shall” report to their nearest governing body for assignment to essential services or to whatever else they might like to do or be able to do that “shall” help in this emergency transition. Thank you very much.

    Of course for anyone to suppose (much less propose) that we “shall” embark on such a global transition to a whole new way of life on earth that “shall” have to leave many of our most sacred treasures, hallowed traditions, and precious possessions behind: like big money capitalism and our market driven ways of life; private property and private fortunes too big to be believed much less deserved; military armed forces that “shall” be disbanded, etc. (Is it possible we could get along with just cops and firepersons and a zillion extra new first responders that “shall” be added to the ranks of emergency response teams, education helpers and extra teachers around the world everywhere, and healthcare provider services especially where they don’t exist now? I think so.) And of course there “shall” be a long list of a zillion other things that only a crazy person could dream up and suppose might make sense in a “Brave New World.” Indeed. When all we really need to solve all of our many planetary problems is not more money but more imagination to create a whole new system of life on earth, a United People of Earth, who could become dedicated to organizing a new world order that “shall” run the world with liberty and justice for all (without the influence of money at all) and where everyone lives happily ever after (to the extent that is possible when money can no longer buy happiness). But for anyone to think for one second that something like this “shall” be possible they would have to be nuts! Wouldn’t they?

  2. PS: Best Wishes for a Happy Holiday and New Year!