The power to create money, in the hands of the banks


Ben Dyson is co-author of«Modernising Money: Why our monetary system is broken and how it can be fixed».He argues that a design flaw in the banking system, which allowsbanks to effectively create more than 97% of the money that our economy runs on, is responsible for the financial crisis, unaffordable housing and the government’s reliance on unsustainable credit-fuelled growth. He is the founder of Positive Money, a campaign for a banking system that works for society and not against it. More information at

„I watched the financial crisis playing out, and there seemed to be some fundamental problems at the heart of the whole crisis that were not being talked about either in the press or in policy circles, or even by professional economists, who should have understood certain issues. And the biggest problem was about the way that money is created in the current banking system.

Most people, if you ask people on the street, they’ll tell you that money can only be created by the government. That only actually only applies to about 3 percent of all the money that exists, and that 3 percent is the cash and the coins. Ninety-seven percent of money just exists as numbers in a computer system, and that money is created by the banks. So every time that you walk into a bank and take out a loan, that money isn’t coming from somebody’s lifesavings; it’s actually new money that is created through a really simple accounting process at the point when you take out that loan. And this is how most of the money in the economy is created when people go into debt.

A lot of people have the idea that when you put your money into a bank and then they go and lend that money out to somebody else, that would only work if the only kind of money that they could use was paper. But because most of the payments that people make now are made electronically, they’re actually able to make these transfers using electronic money. It’s really just an accounting entry. And it means they can effectively create new money whenever they make a loan through this simple accounting process. There’s nothing illegal about it. It’s just the way the entire financial system works today.

We commissioned a survey of members of Parliament in the U.K., and we asked them, where does money come from, and these questions designed to find out if they understood how the financial system works. And what we found was that 71 percent of MPs came back and said that only the government is allowed to create money, including the numbers in your bank account.

Now, the fact is, about three months before that, the Bank of England released a paper where they explained that it is the banks that create 97 percent of the money in our economy. So most members of Parliament – and I’m sure in the U.S. the same situation applies to representatives – really don’t understand that the power to create money has shifted from the government and from the public over to the banking sector. There’s been quite a bit of surprise. I think people thought that after the financial crisis, members of Parliament would be better informed on how the monetary and financial system works. But this–I mean, to be honest, we weren’t surprised, because it’s that lack of understanding that means that even though the crisis was a few years ago, we haven’t really found a solution to the problems. And we’ve kicked the can down the road, but we’re doing a lot of the same mistakes that we were doing before the crisis. If Parliament doesn’t understand that the government no longer has power over the creation of money, then it cannot understand a lot of the things that have gone wrong, you know, things like the housing bubble, the huge rise in personal and household debts, the growing inequality. None of that really makes sense unless you understand the way that the monetary system works, because underneath the entire economy, it’s fundamentally about money. And if you have the power to create money, then essentially you have the power to shape the economy. At the moment, that power to create money sits with the banks, the same banks that caused the financial crisis.

This is an idea that’s been around since the Great Depression of the 1930s. And the idea is really that you take the power to create money away from the banks. The banks have shown that they can’t be trusted with this power because of all the crises and the problems that it’s caused. And you take that power back to the government or the state. Now, you don’t want to give it to politicians, because there’s a good chance that they’ll abuse the power to create money as well. But what you need is a public body working in the public interest, completely transparent, accountable, and democratic, and they would be responsible for creating the money that needs to be added to the economy, but they’d be doing it in the long-term interests of the economy rather than the short-term interests of one of the big banks.

We’re campaigning mainly in the U.K., but also there’s a movement now that’s growing internationally. And what we try and do is really make it easy to understand how this monetary system works and the changes that we need to make to deal with problems like unaffordable housing, the rise in household debt, the growth and inequality. And so if you go to the website, there’s a load of videos on there that make this really simple, take a lot of the jargon out of banking, because fundamentally this isn’t such a complicated issue. It’s about who should have the power to create money and to decide how that money is used”.

The same financial institutions that created the financial crisis are now entrusted with one of the most power tools to shape the economy – and many elected officials have no idea” – Ben Dyson.

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