Pyrpolyzer:
I guess you mean the creation of money by the State, not currency. If yes, what do you really mean?
Firstly, money and currency are similar but ‘
money’ has one quality that ‘
currency’ does not; check the dictionary .......... ‘
money’ is a store of value over time ......... ‘
currency’ has no intrinsic value ...... it is no more than an IOU! (
But for ease let's assume they are the same thing ?)
The State (
UK) creates currency as note and coin and this is spent directly into the economy, it is not lent by the State to the banks they merely distribute it. But that represents about 2% of the currency in circulation and is known as ‘
drawer cash’ or ‘
vault cash’, the other 98% is electronic currency created as a book keeping (
computer) entry by commercial banks.
Banks create debt, they don’t loan anything ..... they provide credit! When you take up the offer of the credit and spend to the agreed amount, it is the payment by the means of transfer (
say a cheque or bank transfer) that creates new money in the recipients account. Your bank will clear your (
rubber) cheque and award you debt. Not a cent actually changes hands. Commercial banks really do create new currency out of thin air!
That the State itself should start giving loans to the people???
No, not directly anyway. The Central Bank would create the electronic currency, out of thin air, just like commercial banks do now. To provide you with the currency for a mortgage or a car loan the banks would borrow the currency from the BoE and at a very low interest rate, maybe even zero. So you, as an individual borrower would see no difference except for the fact that it would be the BoE that would determine the interest rates, and the collateral would be held by the bank on behalf of the State. As the primary lender the State, not the bank, would seize the collateral if you were to default.
BUT ..... if you are the Government it makes a very big difference! Currently, the government gets electronic currency from the banks in exchange for Bonds .... another IOU. They '
borrow' something that never existed until the bank created it to the value of the bond. The banks then charge the government interest for the debt they have created for you the tax payer to repay .... with the interest. This means the new currency is spent into circulation by government expenditure, and then has to be withdrawn from circulation by taking your taxes and eventually repaying it to the bank. It is called a ‘
loan’ but it is no more than a debt, the new money is created when the Treasury adds the electronic currency to its current account and it is then destroyed, when repaid into the bank to redeem the bonds.
If you now transfer the creation of the electronic currency from the banks to the State, the currency is spent as before into the economy by government expenditure ......
but with a big difference! It is NOT a loan, it is effectively an investment by the State (
Who now own the Central Bank) in the State, just as if it were buying shares in itself.
NOW ..... the tax money that before went to the banks to pay off the debt of the bonds, goes straight back to the Treasury through all the collected taxes ..... they then spend it straight back into the economy. It is now perpetual currency, it is not destroyed when paying of a bank debt ..... because there is no debt. Therefore there is no requirement to keep creating new currency it is only needed to top up the system as the government spends more on say education, medical care or new submarines ...... but eventually it all ends up back in the treasury through taxation.
The government no longer needs to control currency creation, the central bank (
BoE) does that ........... it now has to concentrate far more on balancing imports to experts.
Paphitis:
All the above is accurate and true, it can be verified!
But as entrepreneur it works in your favour! Let us say Paphitis Ltd. is a company that undertakes major construction projects and you have won the contract to create a new facility to build a new generation of patrol boats for the government. Your bid is £1bn in total, is accepted and you start work ......... but you need money to do that and you would have to factor into your bid the cost of raising the finance ..... usually through an International bank as stage payments. But, the government can now pay you on Invoice on a
'cost plus' basis. You don’t have to borrow as you would negotiate a deal on say a 30 day invoice. You submit your invoices as cost plus a percentage and are reimbursed by the State within 30 days. The Government does not have to borrow the money .... it creates it, on demand. You pay your contractors and suppliers as well as your employees ..... and they all spend the money into the economy. This raises currency, through taxation, this goes back to the treasury and gets spent again ..... and again .... and again.
The fact that the currency no longer has to be borrowed allows a government to sponsor projects that would otherwise have to be financed with bank ‘
loans’ government bonds....... and with currency that banks just create out of thin air.
Where is the problem with that, which would place any limit on the operation of capitalism. You can still make money just as before, in fact more because you do not have to borrow at interest from banks.
BTW: This is not a looney idea by some pot smoking, left wing, anoraks; it is simple common sense ..... once you get to grips with the fraudulent way the banking system operates today. If you can’t understand/accept the basics then you will never grasp what I am trying to explain to you.
