money as a social technology - leander bindewald (nef)

nef (the new economics foundation)

From Bank Debt to Mutual Credit

orMoney as a social technology

Leander Bindewaldnef (the new economics foundation) NICVA, Belfast, 13st June 2014

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This presentation has been produced by the New Economics Foundation as part of the Community Currencies in Action (CCIA) collaboration project. CCIA is a transnational partnership working to develop and deliver community currency demonstrations in several member states across the North West of Europe. CCIA will lead the way in sharing knowledge and best practice to enable communities throughout Europe to grow stronger in their ability to achieve vibrant and prosperous networks that are efficient in delivering social, economic and environmental outcomes. CCIA will design, develop and implement community currencies across NW Europe; providing a rigorously tested package of support structures to facilitate the development of CCs across NWE and promote CCs as a credible (policy) vehicle for achieving positive outcomes. CCIA is part funded through the INTERREG IVB North West Europe (NWE) Programme, which is a financial instrument of the European Union’s Cohesion Policy - Investing in Opportunities. Find out more about CCIA on our website: www.communitycurrenciesinaction.eu

nef (the new economics foundation)

From Bank Debt to Mutual Credit

1. What is money?

2. What is the role of Banks3. Where does money come from4. Problems with bank-debt money

5. What are Community Currencies?

6. What are the different concepts7. What are the advantages 8. Typical examples

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1. What is money?

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2. What do banks do?

Where did this money come from?

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2. What do banks do?

This is where money is created!

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Loan Agreement

I agree to repay the sum of

£ 10,000

with interest at 10%

Signed: A.

Customer

Customer’s

Bank Statement

Personal loan 10,000

Balance 10,000

DR CR

…and so is

thisThis is an

IOU…

3. Bank credit is money

…but this is

called money!

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Simplified bank balance sheet

Assets Liabilities

Central bank reserves

Bonds & other liquid assets

Derivatives

Customer loans

Government bondsEquity capital

Bonds in issue

Derivatives

Interbank borrowing

Deposits

Interbank lending

This is money

…and this is money

Cash

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Government bonds

The act of creating new money

Assets Liabilities

Bonds & other liquid assets

Derivatives

Customer loans

Equity capital

Bonds in issue

Derivatives

Interbank borrowing

Deposits

Interbank lending

STEP 1a: You sign a loan agreement with the bank. The bank now has a new asset.

STEP 1b: The bank credits your account, creating a new deposit, ie new money.

Central bank reserves

Cash

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The act of creating new money

Assets Liabilities

Bonds & other liquid assets

Derivatives

Customer loans

Equity capital

Bonds in issue

Derivatives

Interbank borrowing

Deposits

Interbank lending

STEP 2a: You spend the money (on whatever you borrowed it for)

STEP 2b: When you transfer your deposit, your bank transfers CB reserves to settle your payment with the other bank.

Central bank reserves

Cash

Government bonds

nef (the new economics foundation)

The act of creating new money

Assets Liabilities

Bonds & other liquid assets

Derivatives

Customer loans

Equity capital

Bonds in issue

Derivatives

Interbank borrowing

Deposits

Interbank lending

STEP 3b: by borrowing on the interbank market

STEP 3a: At the end of the day the bank replenishes its reserves

Central bank reserves

Cash

Government bonds

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Inter-Bank Clearing

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Bank failure: solvency

Assets Liabilities

Bonds & other liquid assets

Derivatives

Customer loans

Equity capital

Bonds in issue

Derivatives

Interbank borrowing

Deposits

Interbank lending

If a bank makes too many losses on its assets (because the debtor defaults)…

It will wipe out its own capital, and become bankrupt.

Central bank reserves

Cash

Government bonds

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Bank failure: liquidity

Assets Liabilities

Bonds & other liquid assets

Derivatives

Customer loans

Equity capital

Bonds in issue

Derivatives

Interbank borrowing

Deposits

Interbank lending

If customers try to cash in their claims too quickly – ‘a run on the bank’

It will run out of reserves and will be broke

Central bank reserves

Cash

Government bonds

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Where does money come from?

“When banks make loans they create additional deposits for those that have borrowed” Bank of England (2007)

“In the Eurosystem, money is primarily created through the extension of bank credit… The commercial banks can create money themselves.”

Bundesbank (2009)

“When banks extend loans to their customers, they create money by crediting their customers’ accounts.”

Mervyn King (2012)

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Bank debt money

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4. Problems with Bank-Debt money

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Monopoly Bank Money

• One size does not fit all economic regions

• Interest and exchange rates favour the strongest

• Vital import/export balancing and competition effects are lost

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Professor, why did nobody notice?

“At every stage, someone was relying on someone else; and everyone thought they were doing the right thing”Professor of Economics Luis Garicano, London School of Economics in response to the Queen, November 2008

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Inequality through embedded interest

www.monneta.org

nef (the new economics foundation) www.egs.mmu.ac.uk

Low Diversity (Monoculture)

Low Interconnectivity

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www.PositiveMoney.org

Monetary Reform

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Who can create money?

Banks

created as interest-bearing debt by private banks

“The Ecology of Money” by Richard Douthwaite

People

based on “resources” and mutual agreement

Government

spent into circulation by state and collected as tax

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5. What are Complementary Currencies?

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High Diversity

High Interconnectivity

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“An agreement within a community to use something as a medium of exchange”

Bernard Lietaer

“Currency is any unit system, that facilitates collaboration in a community”

Currency = Social Technology

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Local exchange – backed by fiat currencies

Social exchange – time credits/hours

Economic exchange – Business Barter, Loyalty points

Environmental exchange – Reward Points, Carbon quotas

Community Currencies concepts

Learning/Awareness, “participate and feel empowered”

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Examples: Local Currencies

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Local Solution: Plugging the leaks

from: www.pluggingtheleaks.org

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Social Inclusion

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SME Credit Currencies

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Ecological Reward Points

www.e-portemonnee.be

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What is Bitcoin? – An Analogy

1922: “I heard it on the Radio”

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2012: “I paid for it with Bitcoin”

What does Bitcoin facilitate?

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CCIA: Implementation Framework

Overall aims

Project Plan

Stakeholders

Project specific objectives

Partners

End users

CurrencyModel

www.CCIA.eu

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www.CCIA.eu/ToC-Toolkit

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Want to know more?

http://www.neweconomics.org/issues/entry/community-currencies

www.community-currency.info

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“Money is not metal; it is trust inscribed”Niall Ferguson

Money - a Social Relationship