7 Oct 2012

More on the N-Euro idea

I've been thinking more about the N-Euro idea that I proposed in my latest Youtube presentation a week ago. Essentially, my proposition is that each of the 17 eurozone governments could introduce a parallel national level money system called the "N-Euro" for "National Euro" or "New Euro". This would be debt-free money that the government could manage using a single national citizens bank. Each citizen could have an account and could choose to receive payments in N-Euros rather than on a conventional Euro bank account. The government would accept N-Euros for the payment of taxes and other charges at the same value as conventional Euros.

As my brother-in-law John pointed out, it wasn't necessarilly obvious to people watching the video why it is such a good thing to be paid in N-Euros. Indeed, why have N-Euros when you can have conventional Euros instead?

Good point John! I guess that for me, the fact that I have now read a whole pile of books about the nature of money and the fact that I am now convinced that creating the money supply as debt is a very bad thing means that the N-Euro option is obviously a good idea. But I was probably going too fast.

So, what would be the advantages of shifting to a debt-free alternative currency? And why should citizens want to be paid with N-Euros?

Remember that most of the money supply in circulation is not in the form of bank notes and coins. Most of it is electronically generated by commercial banks when they make loans. And the critical point is someone has to pay the banks the interest on those loans. That fact is almost certainly the cause of most of the worlds economic misery. We are all having to fight to get our hands on enough of the money to keep our heads above water. But, as Michael Rowbotham pointed out in his book "The Grip of Death", it is a fight that we can never win  together. To keep your head above water in the sea of debt, you are forced to push someone else under in your place. It doesn't have to be that way. Governments could and should be creating the money supply debt free.

The proportion of money that depends on debt is clear from the latest  figures provided by the BIS.  For example, in the UK, there are £57.75 billion in notes and coins in circulation.  But the "Narrow money supply" (M2) is £1,271.62 billion, meaning that 95.5% of all the money in circulation is bank generated.

For the Eurozone, there are currently €913.68 billion in Euro notes and coins in circulation. But the Narrow money supply (M1) is €4,865.5 billion, meaning that 81.2% of the money supply  is in the form of debt-bearing loans made by the banks.  It's less that in the UK, but it is still ridiculous that we have allowed so much of the money supply to be created by commercial banks with no controls.

It is time to break this insane system. But how? The financial sector has managed to get the requirement that governments have to borrow money from the banks written into the Lisbon treaty. I've already argued that there may be a way round this by using paragraph 2 of article 123 of the treaty that leaves the door open for Central banks to lend to "publicly-owned credit institutions" - an idea that I developed in my youtube video "Solving the Debt Problem".

However, I fear that the ability of vested interests to block such moves may be too powerful to allow any progress. We need alternatives. And this is where the N-Euro idea comes in.

Yes, Eurozone governments have to go to the commercial banks and beg if they want euros. But what if they were to use some other payment means? If citizens could be persuaded that N-Euros are valuable and don't insist to be paid in conventional Euros, then their governments could pay them their salaries, pensions and benefits in a form of money that did not need to be borrowed from the markets. As I mentioned in the video, there are now literally hundreds of alternative currencies that have been set up across the globe. And some of these are working well. There are several that have emerged in places like Greece, where there has been a lot of coverage of the TEM, a local currency that has been introduced in the port city of Volos (see the reports on the BBC and elsewhere). But, while these schemes can be very useful,  they lack the official stamp that would come by making those currencies valid for paying one of the most significant things that we all have to pay - namely taxes.

So, all that would be needed is for a government to set up its own system. And it would clearly be in the governments interest. For example, the Greek government can't afford to pay its employees in Euros because it is being crippled by extortionate interest payments that it is having to pay the markets for lending euros. But if its citizens are happy to take N-Euros, there is no problem for the government to "print" the money. Of course, it would have to accept that it won't get paid taxes in conventional euros, but that is alright.

And for the citizens who accept to be paid in N-Euros, they would have the satisfaction of knowing that they are helping to get their government off the hook.

Once the system is off the ground, I strongly suspect that it will rapidly take an increasingly important place in the national life. Shopkeepers and merchants would be happy to take N-Euros in payment because they know that those N-Euros are perfectly valid for paying taxes. And the more merchants join the system, the better.

Within a year or two, it may be possible to have a system where governments can manage much of the economy without the need for begging from the financial markets. Ratings agencies would become virtually irrelevant. 

And along with all that, there would be a host of other benefits.

For example, the governments could no longer be threatened by markets who could threaten to move all their money elsewhere. That is because each countries N-Euro supply can only exist in one place - namely, on the computer that belongs to the citizens bank. You cannot move the money elsewhere. It can't be moved to the Cayman Islands or hidden under a mattress. It has to stay in the economy.

My proposal is that each of the 17 Eurozone governments could set up their own local currency. There would be French N-Euros managed by the French government, Spanish N-Euros managed by the Spanish government, Greek N-Euros managed by the Greek government and so on. Normally, these different local currencies could not be exchanged. That is important because it is essential that each country can keep track of the N-Euro money supply in its own economy.

However, there would be some flexibility. For example, it would be possible that the French government could allow the Greek government to open an account in the French N-Euro system and vice versa. If they wanted to, the two governments could decide to add an equivalent sum to eachothers accounts, thus allowing purchases to be made locally.

But, very importantly, it is the governments that would be able to control this sort of process. It would no longer be the commercial banks that would have the monopoly on money creation. Money would be finally used for what it should be used for - as a way of allowing citizens to develop the economy by providing each other with goods and services - rather than as a way of allowing a tiny group to wield almost unlimited power over the rest of us.

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