It would be nice if I could say that I have spent all this time working on the new "Monnaie Honnête" website that we have been setting up. Unfortunately, that's not really true. I've been busy with plenty of other things (like trying to work out where Consciousness comes from) . However, the association "Monnaie Honnête" now legally exists - we have a president (Claire Boine), and my cousin Chris and I make up the rest of the "bureau". We really hope to get more than a welcome message online "real soon now". Sorry that it has been taking so long.
In the meantime, the members of the bureau have been having some interesting discussions about what we should be pressing for. Given that we are all fans of Positive Money - the UK based movement for monetary reform that has done such an excellent job of generating a highly coherent set of propositions - it is not surprising that their main propositions will be centre stage. Here's my latest version.
- All money creation should be debt free
- The current licence to create money and charge interest that has been given to commercial banks should be immediately removed. Lending money that you don't have and charging interest really is as outrageous as it sounds - and anyone who does it should be put in prison, just like you should be in prison if you print banknotes in your basement
- Any new money creation should be done in a democratically accountable manner by central banks or their equivalent.
- Reduce taxes
- Spend money directly into the economy by financing projects such as building schools, hospitals, housing, developping the transport infrastructure, renewable energy systems etc
- Provide money directly to citizens in the form of a citizen's salary
- Pay off government debt
But, in talking with my colleagues, I've come to the conclusion that there is another possibility, one that is particularly interesting in the case of the Eurozone. Let's assume that the future governer of the European Central Bank decides that the Eurozone needs an injection of (say) 1 trillion euros. This number is not ridiculous - after all, it's the amount that the ECB handed over to the European Banks in two rounds of Long Term Financing Operations (LTROs) at the end of 2011 and the beginning of 2012.
I've previously made the suggestion that instead of handing money to the banks and praying that they might decide to do something sensible, the ECB should hand the same amount of money to the 17 Eurozone governments, and that the decision about how much each country gets should depend simply on population size. Roughly 25% would go to Germany (because roughly 25% of the Eurozone population lives in Germany) and so forth down to 0.1% for Malta (see the table).
How about the ECB simply adding a fixed sum to the bank account of every Eurozone citizen. If they wanted to add €1 trillion to the economy, this would mean adding roughly €3000 to the bank accounts of every man, woman and child in the region. Of course, €1 trillion is being particularly generous, but even €10 billion would make a lot of difference to quite a lot of people in Europe - particularly those in cash starved areas like Greece, Spain and Portugal.
What would people do if they were provided with such funds? Well, obviously in some cases it would just allow them to reduce their overdrafts, but that would in itself be a good thing for banks who would be able to reduce their risk levels. For others, they might use the money to do some useful work like insulating their houses, which would be good for the ecology. Others might use the extra cash to go on holiday, perhaps to places like Greece or Spain who could do with the trade. Yet others might go out and eat in restaurants, again stimulating the local economy, or buy a new car. Virtually all these things would be good news for the Eurozone economy. Almost the only thing that would not be great news for Europe would be if people decided to use all the money to buy Flat Screen TVs from China - but well, you do have to give people some choice.
Compare that with the effect of throwing €1 trillion at the banking system and praying (which is what Central Bankers currently do). What evidence is there that much of that ended up getting into the real economy rather than being used to fuel house price inflation or other speculative bubbles?
But what I find particularly attractive about the idea that the ECB (and other Central Banks like the Bank of England) justs credits money on the bank accounts of ordinary citizens is that it completely bypasses the entire world of politics. There is no way that the money could be used for corruption, buying votes, or any of the other reasons why allowing politicians access to the money creation process is such a taboo. It would be the most neutral way imaginable to get money into the economy. It's Ben Bernanke's helicopter money, but without having people fighting to grab the banknotes being thrown out of the helicopter's window.
Of course, there could be checks. For example, the ECB could decide to only credit a citizen's bank account if that citizen is up to date for tax purposes, and can claim to be a true resident. Children could also count towards their parents allocation, if they were included in the country's educational system, and so forth.
How much could the ECB pump into the economy this way before the tell-tale signs of inflation would lead them to say that the sluice gates needed to be closed down? My guess is that the economy could handle a lot more money without overheating. Indeed, while unemployment is still so high, there is every reason to think that the extra cash could easily get transferred into getting people back to work.
And you know what? If the cash injections directly into people's bank accounts does start lead to some signs of inflation, there is an easy solution. The ECB could directly apply a Financial Transaction Tax on all Euro denominated transactions to just take the money out of the economy. Of course, the traders and speculators would object. But, given that the Eurozone handled at least €1.6 quadrillion in 2011, each 0.05% of FTT would allow the ECB to redistribute another €800 billion among the Eurozone's 333 million inhabitants - around €2500 each - without any possibility of causing inflation because the net effect on the money supply would be nil. Who wouldn't vote for that?
Finally, I note that this suggestion differs from the idea of a citizen's salary - something that would be paid regularly. My suggestion is that the ECB should do all this money injection as a one off. Everytime there are signs that the economy needs more "fuel", the ECB would add a bit more - directly via citizen's bank accounts.
Can you see any problems? I can't.