8 Aug 2015

Bristol Pounds - Debt free money creation at last??

I have been pushing for the introduction of a parallel official currency that might be called the N-Euro. And a Cyclos based banking system using the N-Euro is now up and running, with a dedicated information site at N-Euro.info.

One key feature of such currencies is that they could be pegged to the level of the conventional Euro, and its value guaranteed if a local, regional or national authority accepted it for the payment of taxes or other official fees.  The other key feature would be that the same official authority could use it to pay its staff, or to pay for pensions or other benefits.

With these two key features in place, the stage would be set for bypassing debt-based money creation by commercial banks. The authority could simply pay its workers for the work they do by effectively printing the tokens themselves. There would be no need to go and borrow those tokens from Commercial Banks, and no interest to pay! Simple!

So imagine my pleasure when I discovered that those two key features have already been implemented in at least one complementary currency - the Bristol Pound, launched in September 2012.

It turns out that, as of april 2015, you can now use Bristol pounds to pay your local council taxes in Bristol. You can also use them to pay business rates, as well as gas and electicity bills, and you can buy train tickets to London if you want. Several hundred local businesses will accept payments in Bristol pounds, and payment can be done by simply sending an SMS with the following format: "pay" "your PIN" "trader name" "value". Easy. There's an App that you can use which even hides the fact that it is working via an SMS.

The whole thing is built on Cyclos - the banking system developed by the Social TRade Organisation (STRO) that I have used for my own OWEM and N-EURO systesms.

But it doesn't stop there, because it turns out the Bristol City Council can pay its own workers in Bristol Pounds. Indeed, Bristol's mayor (George Ferguson) is paid entirely in Bristol Pounds, and a fair number of the council's staff receive some proportion of their pay in Bristol Pounds.

Brilliant! Could it be that the people at the Bristol Pound have succeeded in doing something that has not been done since Abraham Lincoln decided to print $400 million "Greenbacks" which he used to pay his soldiers and buy munitions, enabling him to win the American Civil War. That really annoyed the Commercial Bankers, who had offered to lend him the money he needed at interest rates of between 24 and 36%. Unfortunately for the bankers, Lincoln effectively told them to get stuffed - "I'll print my own!" he said. And it worked brilliantly.  But we all know what happened to Abraham Lincoln. Of course, any suggestion that he may have been taken out by the Bankers is pure speculation. (If you want the full story, you can consult the text of the R.E. Search's 1935 book "Lincoln : Money Martyred").

So, have Bristol done it? Have they succeeded in creating their own parallel currency that doesn't require the money to be created as debt by Commercial Banks?

Unfortunately no. The only way that the people at the Bristol Pound managed to get their scheme through the rules and regulations imposed by the FCA (the Financial Conduct Authority) was to have a scheme where every single Bristol Pound has to purchased with an ordinary Pound - one that has been created out of thin air by one of the UKs Commercial Banks.

Specfically, they had to set up a system with the Bristol Credit Union which has the authorisation to swap Bristol Pounds for "real" Pounds. The Credit Union is then required to swap them back when required and on demand. It is that which gives the Bristol Pounds their value.

So, sorry folks. It was a false alarm. No -  the Bristol Pound people have not been allowed to repeat Abraham Lincoln's coup. It's a real shame.

Last monday I spent a fascinating couple of hours talking with two of the people behind the Bristol Pound. Steve Clarke (Bristol Pounds director) and Ciaran Mundy were kind enough to share their vision for the currency they launched three years ago. They are acutely aware of the fact that despite the fact that the Bristol Pound has the two essential features that I want to see in the N-Euro, it really hasn't really changed anything fundamentally. We are still totally dependent on Commercial Banks to create 97% of the money in circulation as interest bearing debt.  They are so close, and yet so far.

But, while talking with Steve and Ciaran, I came up with what might just be a way to break the system.  It turns out that about £800,000 worth of "real" pounds has been swapped for Bristol Pounds that are held with the Bristol Credit Union. But, not surprisingly, the Bristol Credit Union doesn't just put all the notes into a big safe. Instead, it lends most of the money out - at interest.  Like conventional banks, it just has to keep some percentage of the money in case some of the  people with Bristol Pounds want to swap them back for "real" Pounds.  And, like all conventional Banks, they just keep their fingers crossed that everyone won't want to swap the £800,000 of Bristol Pounds that are in circulation on the same day. If they did, they would be very embarrassed, because the money wouldn't be there any more.

So, if the Bristol Credit Union is lending out the money that people have deposited with them, what would stop them lending the money to Bristol City Council? Let us suppose that they lend 90% of the money to the Council (keeping 10% in reserve), and that the Council then promptly used the money to buy some more Bristol Pounds - 90% of £800,000 or £720,000 worth. There would now be £1,520,000 of Bristol Pounds in circulation.  And then the Credit Union could lend 90% of the £720,000 (i.e. around £650,000) to the Council again, and the Council could get yet another £650,000 pounds worth of Bristol Pounds. It could use all these wonderful  Bristol Pounds to pay its staff and provide public services. The Bristol Pounds could circulate in the local economy. And if the Bristol Credit Union decided to impose a 0% interest rate on the loans, everyone (except the commercial bankers) would be very happy.

Does this money multiplication idea sound weird? Actually, the money multiplication process is how commercial banks are supposed to operate anyway. So, in principle, there is nothing to stop it happening.

But here again, we discover that the Banking regulations have been neatly set up to stop this happening. As Steve and Ciaran explained to me, the Bristol Credit Union cannot lend more than some fixed percent of their money to an institutional body like the Bristol City Council.  Yes, the rules of the Financial Conduct Authority have been well written to prevent anyone except Commercial Bankers from creating money.

However, don't tell anyone, but there may be around that one. Suppose the Bristol Credit Union lent the £720,000 to some group of individuals, who then independently decided to lend the money on to Bristol City Council. After all, if an invidual felt like lending to the council at 0% interest, surely it's their right to do so? If the group of individuals who lend the money to the Council  agreed not to ask for their money back, the system would be safe.

Why shouldn't the Bristol Credit Union do this? After all, that sort of shenanigans is what commercial banks do all the time. Remember that, at the height of the financial crisis, Barclays allegedly lent £6 billion to Qatar which was then used to buy shares in ... Barclays. Since, as a commercial bank, Barclays could simply create the £6 billion out of thin air, this illustrates beautifully the nature of our money system. Money creation is in the hands of a priveledged few, who are able to use this priveledge to rake in hundreds of billions of taxpayers money in the form of interest payments on public sector debt every year.

I sincerely believe that systems like the Bristol Pound (and perhaps the N-Euro) are perhaps one of the simplest ways to end this madness. I can see no reason why Bristol City Council, or indeed any other official authority, should not be able to introduce parallel currencies that could be used by citizens and businesses - without debt, and without interest to pay. We would all be better off - with a few exceptions. Namely, those who currently control the money creation process and get to charge us all interest.

No comments:

Post a Comment