Strip private banks of their power to create money

No, it's not me who said it. It's not even Positive Money (although they can quite rightly claim this as a real victory).

It's Martin Wolf, the chief economics commentator of the Financial Times, who published a commentary last friday with the title "Strip private banks of their power to create money".

He starts by saying this:

"Printing counterfeit banknotes is illegal, but creating private money is not. The interdependence between the state and the businesses that can do this is the source of much of the instability of our economies. It could – and should – be terminated."

He goes on to discuss how this could be done by implementing Irving Fisher's "Chicago Plan" from the 1930s, an idea that was shown to be perfectly sensible by the IMF in 2012.

And then he talks specifically about Positive Money's proposals (which are also the proposals being pushed by my own movement in France - Monnaie Honnête).

1) The state, not banks, would create all transactions money- just as it creates cash today.
2) Banks could offer investment accounts, which would provide loans - but could only loan money actually invested by customers. They would be stopped from creating such accounts out of thin air.
3) The central bank would create new money as needed to promote non-inflationary growth.
4) The new money would be injected into the economy in four possible ways : to finance government spending, in place of taxes or borrowing; to make direct payments to citizens; to redeem outstanding debts, public or private; or to make new loans through banks or other intermediaries.

 He then points out some of the massive advantages of such a system

• It would be possible to increase the money supply without encouraging people to borrow to the hilt
• It would end "too big to fail" in banking
• It would transfer seignorage - the benefits of creating money - to the public.

And he makes the following suggestion - a new one for me. If the central bank decided to allow M1 (transactions money) to increase by 5% a year, the government could run a fiscal deficit of 4% of GDP per year without either borrowing or taxing.... that's because M1 is currently about 80% of GDP.

Finally, he squashes the critics who argue that the economy would die for lack of credit. He admits that he used to be sympathetic to that view, but since only about 10% of UK bank lending has financed business investment in sectors other than commercial property, he argues that it would not be difficult to find other ways to finance this.

I really think that the tide may be starting to turn. When will there be a public debate on this question? I can't but think that those who will want to keep the current system in place will have a very tough job convincing the rest of us.