Monetary reform: Difference between revisions

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Contemporary catalysts for reform
 
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{{Short description|Movements to amend the financial system}}
{{Short description|Movements to amend the financial system}}
{{Multiple issues|
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{{Primary sources|date=April 2021}}
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{{Public finance}}
{{Public finance}}
'''Monetary reform''' is any movement or theory that proposes a system of supplying [[money]] and financing the economy that is different from the current system.
'''Monetary reform''' refers to proposals to change a country's monetary system, including how [[money]] is created, regulated, and distributed. Such reforms seek to address perceived problems with current monetary schemes, like financial instability, wealth inequality, or inflation. Monetary reform movements grow during economic crises, proposing alternatives to prevailing systems.


Monetary reformers may advocate any of the following, among other proposals:
Reforms range widely from a return to commodity-backed currencies like the gold standard to more radical changes like full reserve banking or government-issued debt-free money. Some reforms seek technical adjustments to existing systems, while others propose to fundamentally restructure money's economic functions.
* A return to the [[gold standard]] (or [[silver standard]] or [[bimetallism]]).<ref>[https://mises.org/story/3108 Sound Money] {{webarchive|url=https://web.archive.org/web/20090423070618/http://mises.org/story/3108 |date=23 April 2009 }}, [[Lew Rockwell]]</ref><ref>[https://mises.org/story/1971 Our Money Madness], [[Lew Rockwell]]</ref><ref>[https://mises.org/rothbard/genuine.asp The Case for a Gold Dollar], [[Murray Rothbard]]</ref><ref>{{cite book |last1=Glasner |first1=David |title=Free Banking and Monetary Reform |date=25 August 1989 |publisher=Cambridge University Press |isbn=978-0-521-36175-0 |url=https://books.google.com/books?id=JUgynjw4d_4C&dq=Monetary+reformers+gold+standard&pg=PA94 |language=en}}</ref>
* Abolition of central bank support of the banking system during periods of crisis and/or the enforcement of [[full reserve banking]] for the privately owned banking system to remove the possibility of bank runs,<ref>[https://www.mises.org/money.asp What has Government done to our money?], [[Murray Rothbard]]</ref><ref>[https://mises.org/story/1829 The Case for a 100% Gold Dollar], [[Murray Rothbard]]</ref><ref>[https://mises.org/journals/rae/pdf/RAE9_1_1.pdf Free Banking and the Free Bankers], [[Jörg Guido Hülsmann]], Quarterly Journal of Austrian Economics (Vol. 9, No. 1)</ref> possibly combined with [[sovereign money]] issued and controlled by the government or a [[central bank]] under the direction of the government.<ref>{{cite web |title=Sovereign Money |url=https://www.sovereignmoney.eu/ |access-date=13 September 2018 |archive-date=22 June 2019 |archive-url=https://web.archive.org/web/20190622110856/https://sovereignmoney.eu/ |url-status=dead }}</ref> There is an associated debate within [[Austrian School]] whether [[free banking]] or [[full reserve banking]] should be advocated but regardless [[Austrian School]] economists such as [[Murray Rothbard]] support ending central bank bail outs ("[[End the Fed|ending the Fed]]").
* The issuance of interest-free [[credit (finance)|credit]] by a government-controlled and fully owned [[central bank]]. Such interest-free but repayable loans could be used for public infrastructure and productive private investment. This proposal seeks to avoid debt-free money causing inflation.<ref name="books.google.com">{{Cite book|last= Brown |first= Ellen H. |title= Web of Debt |url= https://archive.org/details/Web_of_Debt-The_Shocking_Truth_about_our_Money_System |access-date= 15 December 2007 |year= 2007 |publisher= Third Millennium Press |location= Baton Rouge, Louisiana |isbn= 978-0-9795608-0-4 }}</ref><ref>{{Cite web |url=http://www.monetary.org/lostscienceofmoney.html |title=Stephen A. Zarlenga, ''The Lost Science of Money'' AMI (2002) |access-date=22 September 2008 |archive-url=https://web.archive.org/web/20180828003608/http://www.monetary.org/lostscienceofmoney.html |archive-date=28 August 2018 |url-status=dead }}</ref>
* The issuance of [[social credit]] – "debt-free" or "pure" money issued directly from the [[Treasury]] – rather than the sourcing of fresh money from a [[central bank]] in the form of interest-bearing bonds. [[Maurice Reckitt]] said the community would issue its own credit, enabling goods to be sold below cost.<ref>{{cite book |last1=Burkitt |first1=Brian |last2=Hutchinson |first2=Frances |title=The Political Economy of Social Credit and Guild Socialism |date=14 April 2006 |publisher=Routledge |isbn=978-1-134-75582-0 |url=https://books.google.com/books?id=L-mEAgAAQBAJ&dq=Reckitt,+a+leading+social+credit&pg=PT62 |language=en}}</ref><ref name="Rowbotham 1998">{{Cite book|last= Rowbotham |first= Michael |title= The Grip of Death: A Study of Modern Money, Debt Slavery and Destructive Economics | year= 1998 |publisher= Jon Carpenter Publishing |isbn= 978-1-897766-40-8 }}</ref>
* The issuance of [[demurrage currency]], a form of money that is designed to have a deliberately high [[velocity of money]]. The [[Freiwirtschaft]] economist [[Silvio Gesell]] theorized that demurrage would prevent inflation, recessions, the creation of interest rates, and artificial scarcity of capital.<ref name="baynham-2023">{{cite web |url=https://www.noemamag.com/what-if-money-expired/ |title=What If Money Expired? |last=Baynham |first=Jacob |date=14 November 2023 |website=Noema Magazine |publisher=Berggruen Institute |access-date=26 April 2025}}</ref><ref name="Gesell-NPR">{{cite web |last=Rosalsky |first=Greg |date=27 August 2019 |title=The 'Strange, Unduly Neglected Prophet' |url=https://www.npr.org/sections/money/2019/08/27/754323652/the-strange-unduly-neglected-prophet |publisher=NPR |access-date=17 April 2025}}</ref>
* The international monetary reform by proposing the development of a world central bank managed jointly by all member countries in the world. The world central bank then issues a real international currency that coexists with the national currency of each member country and can be converted to each other at an exchange rate that follows the fundamentals of each country called "auto-balancing". The international currency is only for crosborder transactions between member countries, while domestic transactions continue to use their respective national currencies.<ref>{{Cite report |url=https://www.cambridge.org/engage/coe/article-details/63507b7be79b3fac75f0723b |title=Reforming the International Monetary System |last=Rahman |first=Abdurrahman Arum |date=2022-10-21 |publisher=Economics |doi=10.33774/coe-2022-1sl9n|doi-access=free }}</ref><ref>{{Cite book |last=Rahman |first=Abdurrahman Arum |url=https://books.google.com/books?id=MGxUEAAAQBAJ |title=Initiating a True International Currency |date=2021-12-13 |publisher=Global Currency Initiative |language=en}}</ref>


==Common targets for reform==
== Historical context ==
Of all the aspects of [[monetary policy]], certain topics reoccur as targets for reform:
Monetary reform movements gain prominence during periods of economic instability.<ref>{{Cite book |last=Hetzel |first=Robert L. |url=https://www.google.com/books/edition/The_Federal_Reserve/NqmiEAAAQBAJ?hl=en&gbpv=1&dq=%22monetary+reform%22+movements+prominence+%22great+depression%22&pg=PA263&printsec=frontcover |title=The Federal Reserve: A New History |date=2023-01-11 |publisher=University of Chicago Press |isbn=978-0-226-82165-8 |language=en}}</ref><ref>{{Cite book |last=Phillips |first=Ronnie J. |url=https://www.google.com/books/edition/US_Credit_and_Payments_1800_1935_Part_I/u3MqEQAAQBAJ?hl=en&gbpv=1&dq=%22monetary+reform%22+movements+prominence+1907&pg=PT15&printsec=frontcover |title=US Credit and Payments, 1800–1935, Part I Vol 1 |date=2024-10-28 |publisher=Taylor & Francis |isbn=978-1-040-23367-2 |language=en}}</ref> The [[Great Depression]] sparked reform proposals including the [[Chicago plan]].<ref name=":0" /> Similarly, the [[2008 financial crisis]] renewed interest in alternatives like sovereign money systems,<ref name=":1" /> while the [[Economic impact of the COVID-19 pandemic|COVID-19 pandemic]] further increased debates about monetary system design.<ref>{{Cite book |last=Ferrari-Filho |first=Fernando |url=https://www.google.com/books/edition/Central_Banks_and_Monetary_Regimes_in_Em/Ce-nEAAAQBAJ?hl=en&gbpv=1&dq=%22monetary+reform%22+covid&pg=PR17&printsec=frontcover |title=Central Banks and Monetary Regimes in Emerging Countries: Theoretical and Empirical Analysis of Latin America |last2=Paula |first2=Liuz F. de |date=2023-01-17 |publisher=Edward Elgar Publishing |isbn=978-1-80220-398-1 |language=en}}</ref>


===Reserve requirements===
Monetary system evolution's major transitions included from the [[gold standard]] to the [[Bretton Woods system]] to current [[fiat money]].<ref>{{Cite book |last=Bryan |first=D. |url=https://www.google.com/books/edition/Capitalism_With_Derivatives/yCeGDAAAQBAJ?hl=en&gbpv=1&dq=monetary+system+evolution+%22major+transitions%22&pg=PA108&printsec=frontcover |title=Capitalism With Derivatives: A Political Economy of Financial Derivatives, Capital and Class |last2=Rafferty |first2=M. |date=2005-12-16 |publisher=Springer |isbn=978-0-230-50154-6 |language=en}}</ref> Each transition has generated debate about the optimal monetary arrangement for economic stability and growth.<ref>{{Cite book |last=James |first=Mr Harold |url=https://www.google.com/books/edition/International_Monetary_Cooperation_Since/ypgYEAAAQBAJ?hl=en&gbpv=1&dq=transition+debate+monetary+arrangement&pg=PA85&printsec=frontcover |title=International Monetary Cooperation Since Bretton Woods |date=1996-06-15 |publisher=International Monetary Fund |isbn=978-1-4755-0696-9 |language=en}}</ref><ref>{{Cite book |last=Aliber |first=Robert Z. |url=https://www.google.com/books/edition/The_Reconstruction_of_International_Mone/q8qwCwAAQBAJ?hl=en&gbpv=1&dq=transition+debate+monetary+arrangement+fiat&pg=PA183&printsec=frontcover |title=The Reconstruction of International Monetary Arrangements |date=1986-12-15 |publisher=Springer |isbn=978-1-349-18513-9 |language=en}}</ref>
{{Main|Fractional-reserve banking}}


Banks typically make loans to customers by crediting new demand deposits to the account of the customer. This practice, which is known as [[fractional reserve banking]], permits the total supply of credit to exceed the liquid legal reserves of the bank. The amount of this excess is expressed as the "[[reserve ratio]]" and is limited by government regulators not to exceed a level which they deem adequate to ensure the ability of banks to meet their payment obligations.  Under this system, which is currently practiced throughout the world, the money supply varies with the quantity of legal reserves and the amount of credit issuance by banks.{{citation needed|date=April 2021}}
== Types of monetary reform ==


Several major historical examples of financial regulatory reform occurred in the 20th century relating to fractional-reserve banking, made in response to the [[Great Depression]] and the many [[bank run]]s following the [[crash of 1929]]. These reforms included the creation of [[deposit insurance]] (such as the [[Federal Deposit Insurance Corporation]]) to mitigate against the danger of bank runs.<ref name="mankiw3"/> Countries have also implemented legal [[reserve requirements]] which impose minimum reserve requirements on banks.<ref name="mankiw4">{{Cite book|title=Macroeconomics|last=Mankiw|first=N. Gregory|author-link=Gregory Mankiw|year=2002|edition=5th|publisher=Worth Publishers|location=New York|isbn=0-7167-5237-9|page=[https://archive.org/details/macroeconomics00mank_0/page/487 487]|url=https://archive.org/details/macroeconomics00mank_0/page/487}}</ref> Mainstream economists believe<ref name="mankiw3">{{Cite book|title=Macroeconomics|last=Mankiw|first=N. Gregory|author-link=Gregory Mankiw|year=2002|edition=5th|publisher=Worth Publishers|location=New York|isbn=0-7167-5237-9|page=[https://archive.org/details/macroeconomics00mank_0/page/489 489]|url=https://archive.org/details/macroeconomics00mank_0/page/489}}</ref> that these monetary reforms have made sudden disruptions in the banking system less frequent.
=== Gold standard ===
{{main|Gold standard}}
The [[gold standard]] linked currency values to gold reserves. Under this monetary system, paper money was [[Convertibility|convertible]] to fixed amounts of gold, anchoring currency values.
The classical gold standard functioned internationally from the 1870s to [[World War I]], with a modified version under the [[Bretton Woods system]].<ref>{{Cite book |last=Cohn |first=Theodore H. |url=https://www.google.com/books/edition/Global_Political_Economy/StZRCgAAQBAJ?hl=en&gbpv=1&dq=gold+standard+international+1870s+wwi&pg=PA140&printsec=frontcover |title=Global Political Economy |date=2015-08-07 |publisher=Routledge |isbn=978-1-317-34802-3 |pages=140-1 |language=en}}</ref>


[[Walter Block]] argued fractional reserve banking inherently artificially lowers real [[interest rates]] and leads to business cycles propagated by excessive capital investment and subsequent contraction.<ref>{{cite book |last1=Block |first1=Walter E. |url=https://books.google.com/books?id=htOaEAAAQBAJ&dq=fractional+reserve+artificially+lowers+real+interest+rates&pg=PA95 |title=Action and Choice: An Introduction to Economics |last2=Jankovic |first2=Ivan |date=7 November 2022 |publisher=Springer Nature |isbn=978-981-19-3751-4 |pages=88 |language=en}}</ref><ref>[https://www.mises.org/Books/mysteryofbanking.pdf Murray Rothbard, ''The Mystery of Banking'']</ref> A small number of critics, such as [[Michael Rowbotham]], equate the practice to [[counterfeiting]], because banks are granted the legal right to issue new loans while charging interest on the money thus created. Rowbotham argues that this concentrates wealth in the banking sector with various pernicious effects.<ref name="Rowbotham 1998"/>
'''Proponents' arguments''' include that currencies backed by gold had more stability than [[fiat money]].<ref>{{Cite book |last=Daniels |first=Joseph P. |url=https://www.google.com/books/edition/Global_Economic_Issues_and_Policies/XlwPEAAAQBAJ?hl=en&gbpv=1&dq=commodity-backed+currencies+stable+-stablecoin&pg=PA233&printsec=frontcover |title=Global Economic Issues and Policies |last2=VanHoose |first2=David D. |date=2017-10-25 |publisher=Routledge |isbn=978-1-351-99830-7 |language=en}}</ref> They argue required gold reserves limited financing expenditures through money creation.<ref>{{cite book |last1=Aliber |first1=Robert Z. |title=The Reconstruction of International Monetary Arrangements |date=15 December 1986 |publisher=Springer |isbn=978-1-349-18513-9 |url=https://www.google.com/books/edition/The_Reconstruction_of_International_Mone/q8qwCwAAQBAJ?hl=en&gbpv=1&dq=gold+standard+discipline+limit+money+creation&pg=PA205&printsec=frontcover |language=en}}</ref> [[Austrian school of economics|Austrian school economists]] have advocated returning to gold-backed currencies to prevent inflation.<ref>{{cite book |last1=Boettke |first1=P. J. |title=The Elgar Companion to Austrian Economics |date=1 January 1998 |publisher=Edward Elgar Publishing |isbn=978-0-85793-468-0 |url=https://www.google.com/books/edition/The_Elgar_Companion_to_Austrian_Economic/5Zjzb9cDsMIC?hl=en&gbpv=1&dq=Austrian+school+economists+gold+prevent+inflation&pg=PA406&printsec=frontcover |language=en}}</ref>


'''Critics' arguments''' center on monetary policy constraints during economic downturns. Mainstream economists note the gold standard may have prolonged the [[Great Depression]] by preventing  money supply expansion to fight deflation. Countries that abandoned the gold standard earlier in the Great Depression recovered more quickly.<ref>{{cite book |last1=Bernanke |first1=Ben S. |title=Essays on the Great Depression |date=9 January 2024 |publisher=Princeton University Press |isbn=978-0-691-25966-6 |url=https://www.google.com/books/edition/Essays_on_the_Great_Depression/RUXLEAAAQBAJ?hl=en&gbpv=1&dq=countries+abandoned+gold+standard+earlier+recovered+quickly&pg=PA8&printsec=frontcover |language=en}}</ref>


===Money creation by the central bank===
=== Full reserve banking ===
[[Wright Patman]] objected to governments paying interest for the use of money which the [[central bank]] creates "out of nothing".<ref>For an example of the public criticism of the current monetary system, see the speech of the [[Earl of Caithness]] in the British [[House of Lords]] on 5 March 1997 [{{cite web | title=The Economy - Wednesday 5 March 1997 - UK Parliament | website=Hansard | date=1997-03-05 | url=https://hansard.parliament.uk/Lords/1997-03-05/debates/0d51a926-949b-4df3-bc93-caf0176c6d02/TheEconomy | access-date=2021-04-20}}]</ref><ref>{{Cite book |last=Jeffries |first=Donald |url=https://books.google.com/books?id=n5iSDwAAQBAJ&dq=money+out+of+nothing+%22Wright+Patman%22&pg=PT203 |title=Crimes and Cover-ups in American Politics: 1776-1963 |date=2019-06-18 |publisher=Simon and Schuster |isbn=978-1-5107-4148-5 |language=en}}</ref> These critics claim that this system causes economic activity to depend on the actions of privately owned banks, which are motivated by self-interest rather than by any explicit social purpose or obligation.
{{main|Full-reserve banking}}
Full reserve banking proposals would require banks to hold 100% reserves for customer deposits, eliminating [[fractional-reserve banking]] currently used worldwide.<ref>{{Cite book |last=Nyborg |first=Kjell G. |url=https://www.google.com/books/edition/Collateral_Frameworks/A_mnDQAAQBAJ?hl=en&gbpv=1&dq=Full+reserve+eliminate+fractional&pg=PA269&printsec=frontcover |title=Collateral Frameworks: The Open Secret of Central Banks |date=2016-12-15 |publisher=Cambridge University Press |isbn=978-1-316-78532-4 |language=en}}</ref> In a full reserve system, banks would operate as intermediaries not creators of credit.<ref>{{Cite book |last=Lauk |first=T. |url=https://www.google.com/books/edition/The_Triple_Crisis_of_Western_Capitalism/lyFHBQAAQBAJ?hl=en&gbpv=1&dq=Full+reserve+warehouses+money&pg=RA1-PT118&printsec=frontcover |title=The Triple Crisis of Western Capitalism: Democracy, Banking, and Currency |date=2014-11-20 |publisher=Springer |isbn=978-1-137-43296-4 |language=en}}</ref>


===International organizations and developing nations===
'''Theoretical foundation:'''
[[Michael Hudson (economist)|Michael Hudson]] criticised existing global financial institutions such as the [[World Bank]] and [[International Monetary Fund]] for reinforcing debt dependency.<ref>{{cite book |last1=Marsden |first1=Lee |title=The Ashgate Research Companion to Religion and Conflict Resolution |date=23 March 2016 |publisher=Routledge |isbn=978-1-317-04183-2 |url=https://www.google.com/books/edition/The_Ashgate_Research_Companion_to_Religi/6fvOCwAAQBAJ?hl=en&gbpv=1&dq=Michael+Hudson+IMF+debt+dependency&pg=PA216&printsec=frontcover |language=en}}</ref> The attempt by weak [[Third World]] governments to service external debt with the sale of valuable hard and soft commodities on world markets is seen by some to be destructive of local cultures, destroying local communities and their environment.<ref name="books.google.com"/><ref name="Rowbotham 1998"/><ref>As an example of groups critical of the World Bank, see the [[Whirled Bank]] website.</ref>
The [[Chicago plan]], designed by [[University of Chicago]] economists,<ref name=":0">{{Cite book |last=Herger |first=Nils |url=https://www.google.com/books/edition/Understanding_Central_Banks/MNaIDwAAQBAJ?hl=en&gbpv=1&dq=%22Full+reserve%22+eliminate+%22bank+run%22&pg=PA95&printsec=frontcover |title=Understanding Central Banks |date=2019-02-19 |publisher=Springer |isbn=978-3-030-05162-4 |language=en}}</ref> spurred academic attention. The plan would separate monetary and credit functions, transferring money creation to government control.<ref>{{cite book |last1=Nageswaran |first1=V. Anantha |last2=Natarajan |first2=Gulzar |title=The Rise of Finance: Causes, Consequences and Cures |date=25 April 2019 |publisher=Cambridge University Press |isbn=978-1-108-63325-3 |url=https://www.google.com/books/edition/The_Rise_of_Finance/x3SmDwAAQBAJ?hl=en&gbpv=1&dq=separate+money+creation+credit+allocation&pg=PA167&printsec=frontcover |language=en}}</ref>
 
'''Proponents' arguments''' include the elimination of [[Bank run|bank runs]], as banks would have reserves to meet all withdrawals.<ref>{{cite book |last1=Herger |first1=Nils |title=Understanding Central Banks |date=19 February 2019 |publisher=Springer |isbn=978-3-030-05162-4 |url=https://www.google.com/books/edition/Understanding_Central_Banks/MNaIDwAAQBAJ?hl=en&gbpv=1&dq=%22Full+reserve%22+%22bank+run%22&pg=PA95&printsec=frontcover |language=en}}</ref> They argue it would reduce systemic risk<ref>{{cite book |last1=Bossone |first1=Biagio |title=Trailblazing Visions of Money in Economic Theory: Essence, Genesis, and Economic Ramifications |date=16 April 2025 |publisher=Springer Nature |isbn=978-3-031-82544-6 |url=https://www.google.com/books/edition/Trailblazing_Visions_of_Money_in_Economi/xLBWEQAAQBAJ?hl=en&gbpv=1&dq=%22Full+reserve%22+%22systemic+risk%22&pg=PA181&printsec=frontcover |language=en}}</ref> and provide governments greater control over the money supply.<ref>{{cite book |last1=Heise |first1=Michael |title=Inflation Targeting and Financial Stability: Monetary Policy Challenges for the Future |date=26 February 2019 |publisher=Springer |isbn=978-3-030-05078-8 |url=https://www.google.com/books/edition/Inflation_Targeting_and_Financial_Stabil/7HSKDwAAQBAJ?hl=en&gbpv=1&dq=%22Full+reserve%22+government+%22money+supply%22&pg=PA87&printsec=frontcover |language=en}}</ref>
 
'''Critics' arguments''' focus on potential economic disruption and reduced credit access. They suggest full reserve banking could drive borrowers to the [[shadow banking system]].<ref>{{Cite book |last=Boulter |first=Stephen |url=https://www.google.com/books/edition/Natural_Law_Liberalism_and_the_Malaise_o/E4YVEQAAQBAJ?hl=en&gbpv=1&dq=%22full+reserve%22+shadow+bank&pg=PA211&printsec=frontcover |title=Natural Law Liberalism and the Malaise of Modernity |date=2024-07-22 |publisher=Springer Nature |isbn=978-3-031-59737-4 |language=en}}</ref> Mainstream economists express concern about reduced capital allocation efficiency, as well as transition costs and potential unintended consequences.<ref>{{Cite book |last=Nageswaran |first=V. Anantha |url=https://www.google.com/books/edition/The_Rise_of_Finance/x3SmDwAAQBAJ?hl=en&gbpv=1&dq=%22full+reserve%22+unintended&pg=PA155&printsec=frontcover |title=The Rise of Finance: Causes, Consequences and Cures |last2=Natarajan |first2=Gulzar |date=2019-04-25 |publisher=Cambridge University Press |isbn=978-1-108-63325-3 |language=en}}</ref>
 
=== Sovereign money ===
{{main|Monetary_sovereignty#Sovereign_money_creation}}
Sovereign money systems propose transferring [[money creation]] from [[Commercial bank|commercial banks]] to government institutions like [[Central bank|central banks]]. Under the current system, commercial banks create money through loans;<ref>{{Cite book |last=Sekerke |first=Matt |url=https://www.google.com/books/edition/Making_Money_Work/bE5aEQAAQBAJ?hl=en&gbpv=1&dq=bank+loan+deposit+creation&pg=PA43&printsec=frontcover |title=Making Money Work: How to Rewrite the Rules of Our Financial System |last2=Hanke |first2=Steve H. |date=2025-04-29 |publisher=John Wiley & Sons |isbn=978-1-394-25727-0 |language=en}}</ref> sovereign money would make money creation a government monopoly.<ref>{{Cite book |last=Rahmatian |first=Andreas |url=https://www.google.com/books/edition/Credit_and_Creed/z365DwAAQBAJ?hl=en&gbpv=1&dq=%22Sovereign+money%22+transfer+from+%22commercial+banks%22&pg=PT220&printsec=frontcover |title=Credit and Creed: A Critical Legal Theory of Money |date=2019-10-28 |publisher=Routledge |isbn=978-0-429-59484-7 |language=en}}</ref>
 
'''Theoretical basis:''' Proponents argue money creation should be a public function rather than a private one. They propose that government created money could be spent into circulation for public purposes instead of private bank profit.<ref>{{Cite book |last=Tinguely |first=Joseph J. |url=https://www.google.com/books/edition/The_Palgrave_Handbook_of_Philosophy_and/qwEREQAAQBAJ?hl=en&gbpv=1&dq=%22sovereign+money%22+spent+%22public+purpose%22&pg=PA237&printsec=frontcover |title=The Palgrave Handbook of Philosophy and Money: Volume 2: Modern Thought |date=2024-06-27 |publisher=Springer Nature |isbn=978-3-031-54140-7 |language=en}}</ref>
 
'''Policy examples:''' Switzerland held the [[2018 Swiss sovereign-money initiative]],<ref>{{Cite book |last=Dombret |first=Andreas |url=https://www.google.com/books/edition/The_Next_Systemic_Financial_Crisis_Where/SpnvEAAAQBAJ?hl=en&gbpv=1&dq=2018+Swiss+sovereign-money+initiative&pg=PA141&printsec=frontcover |title=The Next Systemic Financial Crisis – Where Might it Come From?: Financial Stability in a Polycrisis World |last2=Kenadjian |first2=Patrick |date=2024-01-29 |publisher=Walter de Gruyter GmbH & Co KG |isbn=978-3-11-134093-7 |language=en}}</ref> which did not pass. Iceland considered a similar proposal following the [[2008–2011 Icelandic financial crisis]].<ref name=":1">{{Cite book |last=Moosa |first=Imad A. |url=https://www.google.com/books/edition/Contemporary_Issues_In_The_Post_crisis_R/eWZtDQAAQBAJ?hl=en&gbpv=1&dq=sovereign-money+Iceland&pg=PA346&printsec=frontcover |title=Contemporary Issues In The Post-crisis Regulatory Landscape |date=2016-10-14 |publisher=World Scientific |isbn=978-981-310-953-7 |language=en}}</ref> These real-world applications provide insight into political and implementation challenges.
 
'''Economic analysis:''' Supporters argue sovereign money could provide better control over they money supply and reduce debt burden.<ref>{{Cite book |last=Huber |first=Joseph |url=https://www.google.com/books/edition/Sovereign_Money/HIuxDQAAQBAJ?hl=en&gbpv=1&dq=%22sovereign+money%22+debt+burden&pg=PA167&printsec=frontcover |title=Sovereign Money: Beyond Reserve Banking |date=2016-12-09 |publisher=Springer |isbn=978-3-319-42174-2 |language=en}}</ref> Critics claim asset bubbles may still be possible.<ref>{{Cite book |last=Weber |first=Beat |url=https://www.google.com/books/edition/Democratizing_Money/u01UDwAAQBAJ?hl=en&gbpv=1&dq=%22sovereign+money%22+instability&pg=PA174&printsec=frontcover |title=Democratizing Money?: Debating Legitimacy in Monetary Reform Proposals |date=2018-05-17 |publisher=Cambridge University Press |isbn=978-1-108-17392-6 |language=en}}</ref> The Swiss National Bank opposed the initiative claiming lack of expertise and resources.<ref>{{Cite book |last=Crocker |first=Geoff |url=https://www.google.com/books/edition/Rethinking_Income_and_Money/4kZeEQAAQBAJ?hl=en&gbpv=1&dq=%22sovereign+money%22+%22swiss+national+bank%22+opposed&pg=PA62&printsec=frontcover |title=Rethinking Income and Money: Incorporating Technology into Economic Theory |date=2025-05-16 |publisher=Springer Nature |isbn=978-3-031-77782-0 |language=en}}</ref>
 
=== Social credit ===
{{main|Social credit}}
'''Social credit''' theory, developed by [[C. H. Douglas]] starting in the 1920s, proposes that governments issue money directly to citizens as a social dividend.<ref>{{Cite book |last=Johnston |first=Thomas |url=https://www.google.com/books/edition/The_Financiers_and_the_Nation/07I1EQAAQBAJ?hl=en&gbpv=1&dq=social+credit+directly+dividend&pg=PA145&printsec=frontcover |title=The Financiers and the Nation |date=2025-03-01 |publisher=Taylor & Francis |isbn=978-1-040-31341-1 |language=en}}</ref> This would supplement wages and fill the deficit of purchasing power to a "just" price of goods and services.<ref>{{Cite book |last=Adria |first=Marco L. |url=https://www.google.com/books/edition/Technology_and_Nationalism/_zYdzPazD6wC?hl=en&gbpv=1&dq=social+credit+all+goods&pg=PA143&printsec=frontcover |title=Technology and Nationalism |date=2010 |publisher=McGill-Queen's Press - MQUP |isbn=978-0-7735-3669-2 |language=en}}</ref> [[Maurice Reckitt]] said the community would issue its own credit, enabling goods to be sold below cost.<ref>{{cite book |last1=Burkitt |first1=Brian |url=https://books.google.com/books?id=L-mEAgAAQBAJ&dq=Reckitt,+a+leading+social+credit&pg=PT62 |title=The Political Economy of Social Credit and Guild Socialism |last2=Hutchinson |first2=Frances |date=14 April 2006 |publisher=Routledge |isbn=978-1-134-75582-0 |language=en}}</ref>
 
The [[Social Credit Party of Canada]] gained power in Alberta in 1935,<ref>{{Cite book |last=Hanson |first=Eric John |url=https://www.google.com/books/edition/Eric_J_Hanson_s_Financial_History_of_Alb/s-aQrhjd0r4C?hl=en&gbpv=1&dq=Social+Credit+Party+of+Canada+Alberta+1935&pg=PA30&printsec=frontcover |title=Eric J. Hanson's Financial History of Alberta, 1905-1950 |date=2003 |publisher=University of Calgary Press |isbn=978-1-55238-090-1 |language=en}}</ref> governing for decades.<ref>{{Cite book |last=Center |first=University of Regina Canadian Plains Research |url=https://www.google.com/books/edition/Alberta_Premiers_of_the_Twentieth_Centur/naghmtnXQoYC?hl=en&gbpv=1&dq=social+credit+alberta+decades&pg=PA256&printsec=frontcover |title=Alberta Premiers of the Twentieth Century |date=2004 |publisher=University of Regina Press |isbn=978-0-88977-151-2 |language=en}}</ref> Mainstream economists did not accept social credit, claiming it was inflationary.<ref>{{Cite book |last=Burkitt |first=Brian |url=https://www.google.com/books/edition/The_Political_Economy_of_Social_Credit_a/XeyEAgAAQBAJ?hl=en&gbpv=1&dq=%22social+credit%22+mainstream+economist&pg=PA138&printsec=frontcover |title=The Political Economy of Social Credit and Guild Socialism |last2=Hutchinson |first2=Frances |date=2006-04-14 |publisher=Routledge |isbn=978-1-134-75583-7 |language=en}}</ref>
 
Related proposals advocate for the government issuing interest-free money for infrastructure. Proponents seek to prevent inflation by withdrawing the credit from circulation as the loan is repaid.<ref>{{Cite book |last=Simms |first=Andrew |url=https://www.google.com/books/edition/The_New_Economics/OXUQBAAAQBAJ?hl=en&gbpv=1&dq=interest-free+infrastructure+%22social+credit%22&pg=PA90&printsec=frontcover |title=The New Economics: A Bigger Picture |last2=Boyle |first2=David |date=2009-09-16 |publisher=Routledge |isbn=978-1-136-57338-5 |language=en}}</ref> Historical examples of government-issued interest-free money include [[American Revolution]] [[Early American currency#Continental currency|continentals]]<ref>{{Cite book |last=Smith |first=Merril D. |url=https://www.google.com/books/edition/The_World_of_the_American_Revolution/nRnOEAAAQBAJ?hl=en&gbpv=1&dq=Continental+government+issued&pg=PT68&printsec=frontcover |title=The World of the American Revolution: A Daily Life Encyclopedia [2 volumes] |date=2015-08-28 |publisher=Bloomsbury Publishing USA |isbn=979-8-216-16852-2 |language=en}}</ref> and [[American Civil War]] [[Greenback (1860s money)|greenbacks]].<ref>{{Cite book |last=Arnold |first=James R. |url=https://www.google.com/books/edition/American_Civil_War/lEzEEAAAQBAJ?hl=en&gbpv=1&dq=%22The+Greenbacks:+Or,+The+Money+that+Won+the+Civil+War%22&pg=PA335&printsec=frontcover |title=American Civil War: The Essential Reference Guide |last2=Wiener |first2=Roberta |date=2011-07-19 |publisher=Bloomsbury Publishing USA |isbn=978-1-59884-906-6 |language=en}}</ref>
 
=== Alternative currency systems ===
 
==== Demurrage currency ====
{{main|Demurrage currency}}
Demurrage currency is designed to lose value over time, encouraging circulation not hoarding.<ref>{{Cite book |last=Mooney |first=Annabelle |url=https://www.google.com/books/edition/The_Language_of_Money/cJtYDwAAQBAJ?hl=en&gbpv=1&dq=Demurrage+currency+lose+value+circulation&pg=PA1990&printsec=frontcover |title=The Language of Money: Proverbs and Practices |date=2018-04-27 |publisher=Routledge |isbn=978-1-315-43591-6 |language=en}}</ref> Economist [[Silvio Gesell]] sought to boost velocity, requiring periodic stamps to keep the money valid.<ref>{{Cite book |last=Homburg |first=Stefan |url=https://www.google.com/books/edition/A_Study_in_Monetary_Macroeconomics/9jooDwAAQBAJ?hl=en&gbpv=1&dq=Silvio+Gesell+velocity&pg=PA43&printsec=frontcover |title=A Study in Monetary Macroeconomics |date=2017 |publisher=Oxford University Press |isbn=978-0-19-880753-7 |language=en}}</ref>
 
Historical examples include the [[Wära]] in Germany. It had led to modest economic prosperity before it was forbidden by the finance ministry.<ref>{{Cite book |last=Zimmermann |first=Claus D. |url=https://www.google.com/books/edition/A_Contemporary_Concept_of_Monetary_Sover/3QPsAQAAQBAJ?hl=en&gbpv=1&dq=Demurrage+Great+Depression&pg=PA34&printsec=frontcover |title=A Contemporary Concept of Monetary Sovereignty |date=2013-11-07 |publisher=OUP Oxford |isbn=978-0-19-150206-4 |language=en}}</ref>
 
Despite their success, most demurrage currencies were banned by central banks for violating national monopolies on currency.<ref>{{Cite book |last=Gómez |first=Georgina M. |url=https://www.google.com/books/edition/Monetary_Plurality_in_Local_Regional_and/NmFoDwAAQBAJ?hl=en&gbpv=1&dq=demurrage+currency+ban&pg=PT260&printsec=frontcover |title=Monetary Plurality in Local, Regional and Global Economies |date=2018-10-09 |publisher=Routledge |isbn=978-1-351-98746-2 |language=en}}</ref> Contemporary versions include [[complementary currency]]<ref>{{Cite book |last=Kesting |first=Stefan |url=https://www.google.com/books/edition/The_Gift_in_the_Economy_and_Society/XMYKEAAAQBAJ?hl=en&gbpv=1&dq=Demurrage+complementary+currencies+negative+interest+rates&pg=PA1982&printsec=frontcover |title=The Gift in the Economy and Society: Perspectives from Institutional Economics and Other Social Sciences |last2=Negru |first2=Ioana |last3=Silvestri |first3=Paolo |date=2020-12-28 |publisher=Routledge |isbn=978-1-000-33335-0 |language=en}}</ref> and negative interest rate proposals.<ref>{{Cite book |last=Boyle |first=David |url=https://www.google.com/books/edition/The_Money_Changers/TCxACwAAQBAJ?hl=en&gbpv=1&dq=negative+interest+rate+proposals+demurrage&pg=PA221&printsec=frontcover |title=The Money Changers: Currency Reform from Aristotle to E-Cash |date=2015-12-22 |publisher=Routledge |isbn=978-1-134-20806-7 |language=en}}</ref>
 
==== Local currencies ====
{{main|Local currency}}
Local currencies and [[local exchange trading system]] (LETS) create [[community-based economics|community-based]] alternatives to national currencies.<ref>{{Cite book |last=Barton |first=Hugh |url=https://www.google.com/books/edition/Sustainable_Communities/phNEAgAAQBAJ?hl=en&gbpv=1&dq=Local+Exchange+Trading+Systems+Community-based+economics&pg=PT184&printsec=frontcover |title=Sustainable Communities: The Potential for Eco-Neighbourhoods |date=2013-12-02 |publisher=Routledge |isbn=978-1-317-97330-0 |language=en}}</ref> These systems aim to improve the economy in local communities and can include features like demurrage.<ref>{{Cite book |last=Larsson |first=Mats |url=https://www.google.com/books/edition/Circular_Business_Models/LyFLDwAAQBAJ?hl=en&gbpv=1&dq=demurrage+scrip+great+depression+localities&pg=PA234&printsec=frontcover |title=Circular Business Models: Developing a Sustainable Future |date=2018-02-05 |publisher=Springer |isbn=978-3-319-71791-3 |language=en}}</ref> Examples include [[Ithaca Hours]] in New York and [[Time-based currency|time banks]].<ref>{{Cite book |last=Collom |first=Ed |url=https://www.google.com/books/edition/Equal_Time_Equal_Value/jzc3DAAAQBAJ?hl=en&gbpv=1&dq=local+currency+%22ithaca+hours%22+time+bank&pg=PT211&printsec=frontcover |title=Equal Time, Equal Value: Community Currencies and Time Banking in the US |last2=Lasker |first2=Judith N. |date=2016-05-23 |publisher=Routledge |isbn=978-1-317-14187-7 |language=en}}</ref>
 
==== Free banking ====
{{main|Free banking}}'''Free banking''' proposals would allow private bank issued currencies, eliminating central bank restrictions on money creation.<ref>{{Cite book |last=White |first=Lawrence H. |url=https://www.google.com/books/edition/Competition_and_Currency/DX0VCgAAQBAJ?hl=en&gbpv=1&dq=%22free+banking%22+private+currency+eliminate+monopoly&pg=PA39&printsec=frontcover |title=Competition and Currency: Essays on Free Banking and Money |date=November 1989 |publisher=NYU Press |isbn=978-0-8147-9224-7 |language=en}}</ref> Proponents argue competition creates pressure for stable currencies,<ref>{{Cite book |last=Bonnet |first=Jean |url=https://www.google.com/books/edition/Exploring_the_Entrepreneurial_Society/G18sDwAAQBAJ?hl=en&gbpv=1&dq=%22free+banking%22+competition+stable&pg=PA64&printsec=frontcover |title=Exploring the Entrepreneurial Society: Institutions, Behaviors and Outcomes |last2=Dejardin |first2=Marcus |last3=García-Pérez-de-Lema |first3=Domingo |date=2017-07-28 |publisher=Edward Elgar Publishing |isbn=978-1-78347-266-6 |language=en}}</ref> while critics raise coordination problems.<ref>{{Cite book |last=Mullineux |first=A. W. |url=https://www.google.com/books/edition/Handbook_of_International_Banking/nCu8oe2i5y0C?hl=en&gbpv=1&dq=%22free+banking%22+coordination+problem&pg=PA174&printsec=frontcover |title=Handbook of International Banking |last2=Murinde |first2=Victor |date=2003-01-01 |publisher=Edward Elgar Publishing |isbn=978-1-84376-564-6 |language=en}}</ref>
 
== Contemporary catalysts for reform ==
 
=== COVID and monetary policy ===
The COVID-19 pandemic prompted unprecedented monetary policy responses, including massive [[quantitative easing]] (QE) programs by major central banks.<ref>{{Cite news |date=2020-04-14 |title=Factbox: Global economic policy response to coronavirus crisis |url=https://www.reuters.com/article/business/factbox-global-economic-policy-response-to-coronavirus-crisis-idUSKCN21W2A9/ |access-date=2025-08-21 |work=Reuters |language=en-GB}}</ref> Rising inflation in 2022 led most central banks to switch to [[quantitative tightening]].<ref>{{Cite book |last=Wullweber |first=Joscha |url=https://www.google.com/books/edition/Central_Bank_Capitalism/TagOEQAAQBAJ?hl=en&gbpv=1&dq=COVID+QE+economic+recovery+inflation&pg=PT215&printsec=frontcover |title=Central Bank Capitalism: Monetary Policy in Times of Crisis |date=2024-08-13 |publisher=Stanford University Press |isbn=978-1-5036-3963-8 |language=en}}</ref>
 
The inflation surge reignited debates about:
 
* The effectiveness and side effects of QE programs<ref>{{Cite news |last=Kihara |first=Leika |date=2024-12-20 |title=Bank of Japan bids final farewell to Kuroda's radical policy experiment |url=https://www.reuters.com/world/japan/boj-bids-final-farewell-kurodas-radical-policy-experiment-2024-12-20/ |access-date=2025-08-21 |work=Reuters |language=en}}</ref>
* [[Central bank independence]] and political pressures<ref>{{Cite news |date=2024-03-26 |title=Charges and procedure to bring Polish central bank governor before tribunal |url=https://www.reuters.com/world/europe/charges-procedure-bring-polish-central-bank-governor-before-tribunal-2024-03-26/ |access-date=2025-08-21 |work=Reuters |language=en}}</ref>
* The need for alternative monetary frameworks<ref>{{Cite book |last=Mun |first=U.-sik |url=https://www.google.com/books/edition/Monetary_Policy_and_Central_Banking_in_K/ghhdEAAAQBAJ?hl=en&gbpv=1&dq=COVID+QE+alternative+monetary+frameworks&pg=PA315&printsec=frontcover |title=Monetary Policy and Central Banking in Korea |last2=Moon |first2=Woosik |date=2022-02-24 |publisher=Cambridge University Press |isbn=978-1-316-51498-6 |language=en}}</ref>
* The role of [[Debt monetization|fiscal-monetary coordination]]<ref>{{Cite book |last=Beukers |first=Thomas |url=https://www.google.com/books/edition/The_New_European_Central_Bank_Taking_Sto/YSqdEAAAQBAJ?hl=en&gbpv=1&dq=COVID+QE+fiscal-monetary+coordination&pg=PA162&printsec=frontcover |title=The New European Central Bank: Taking Stock and Looking Ahead |last2=Fromage |first2=Diane |last3=Monti |first3=Giorgio |date=2022-11-28 |publisher=Oxford University Press |isbn=978-0-19-264468-8 |language=en}}</ref>


== Arguments for reform ==
== Arguments for reform ==
Among the arguments for a transition to [[full-reserve banking]] or [[sovereign money]] are as follows:


* Money are created when a loan is made and this money disappear when the loan is paid down.{{vague|date=April 2021}} The central banks cannot control the [[money supply]] when private banks are creating credit money. Credit money can be converted to reserve money in various ways so that there is no practical limit to the amount of credit money that can be created by private banks.<ref  
=== Financial stability concerns ===
name=Werner2016>{{cite journal |last1=Werner |first1=Richard A. |title=A Lost Century in Economics: Three Theories of Banking and the Conclusive Evidence |journal=International Review of Financial Analysis |date=2016 |volume=46 |issue=July |pages=361–79 |doi=10.1016/j.irfa.2015.08.014|doi-access=free |hdl=2086/17270 |hdl-access=free }}</ref><ref
Monetary reform advocates often cite financial instability to justify systemic change.<ref>{{Cite book |last=Epstein |first=Gerald A. |url=https://www.google.com/books/edition/Banking_Monetary_Policy_and_the_Politica/V0kjBAAAQBAJ?hl=en&gbpv=1&dq=%22Monetary+reform%22+%22financial+instability%22&pg=PA18&printsec=frontcover |title=Banking, Monetary Policy and the Political Economy of Financial Regulation: Essays in the Tradition of Jane D'Arista |last2=Sclesinger |first2=Tom |last3=Vernengo |first3=Matias |date=2014-07-31 |publisher=Edward Elgar Publishing |isbn=978-1-78347-264-2 |language=en}}</ref> They argue fractional reserve creates a mismatch between liquid deposits and illiquid loans.<ref>{{Cite book |last=Cantore |first=Carlo Maria |url=https://www.google.com/books/edition/The_Prudential_Carve_Out_for_Financial_S/9KtcDwAAQBAJ?hl=en&gbpv=1&dq=mismatch+liquid+deposits+illiquid+loans&pg=PA35&printsec=frontcover |title=The Prudential Carve-Out for Financial Services: Rationale and Practice in the GATS and Preferential Trade Agreements |date=2018-05-31 |publisher=Cambridge University Press |isbn=978-1-108-24662-0 |language=en}}</ref> This can lead to bank runs and government interventions during crises.<ref>{{Cite book |last=Saleh |first=Nashwa |url=https://www.google.com/books/edition/An_Anatomy_of_the_Financial_Crisis/xWZyhqtimngC?hl=en&gbpv=1&dq=bank+runs+government+intervention+crises&pg=PA62&printsec=frontcover |title=An Anatomy of the Financial Crisis: Blowing Tumbleweed : when Institutions are Too Big to Frame! : what Lessons Can We Learn and are We Capable of Learning Them? |date=2010 |publisher=Anthem Press |isbn=978-0-85728-961-2 |language=en}}</ref>
name=BenesKumhof2012>Benes, Jaromir and Michael Kumhof (2012). "The Chicago Plan Revisited". IMF Working Paper, no. 202.</ref> This increases the risk of [[Financial crisis|economic crises]], [[unemployment]], and [[Bailout|bank bailouts]] or [[bank run]]s.<ref  
name=zarlenga2002>{{cite book |last1=Zarlenga |first1=Stephen |title=The Lost Science of Money: The Mythology of Money – The Story of Power |date=2002 |publisher=American Monetary Institute |isbn=1-930748-03-5}}</ref><ref  
name=DiMuzioRobbins>{{cite book |last1=Di Muzio |first1=Tim |last2=Robbins |first2=Richard H.|title=An Anthropology of Money: A Critical Introduction |date=2017 |publisher=Routledge |isbn=978-1-138-64600-1}}</ref>


* Less than 6% of the money in circulation in the world is coins and bank notes, the rest originates from bank credit, carrying interest. This interest allows banks to earn rents from the mere fact that money exist. Reformers do not think it fair that the whole society is paying rents to the banks just for having money to circulate.<ref  
Procyclical bank lending expands credit during booms, contributing to asset bubbles, followed by a drop in credit during busts, amplifying economic downturns.<ref>{{Cite book |last=Yueh |first=Linda |url=https://www.google.com/books/edition/What_Would_the_Great_Economists_Do/1pZVDwAAQBAJ?hl=en&gbpv=1&dq=procyclical+bank+lending&pg=PA115&printsec=frontcover |title=What Would the Great Economists Do?: How Twelve Brilliant Minds Would Solve Today's Biggest Problems |date=2018-06-05 |publisher=Picador |isbn=978-1-250-18053-7 |language=en}}</ref> The money supply is created by bank lending, and central banks have limited ability to stop booms with higher capital requirements.<ref>{{Cite journal |last=Werner |first=Richard A. |date=2016-07-01 |title=A lost century in economics: Three theories of banking and the conclusive evidence |url=https://www.sciencedirect.com/science/article/pii/S1057521915001477 |journal=International Review of Financial Analysis |volume=46 |page=374 |pages= |doi=10.1016/j.irfa.2015.08.014 |issn=1057-5219|hdl=2086/17270 |hdl-access=free }}</ref>
name=BenesKumhof2012 /><ref name=zarlenga2002 /><ref
name=JacksonDyson>Jackson, A. and Dyson, B. (2012). ''Modernising Money: Why our Monetary System is Broken and how it can be Fixed.'' London: Positive Money.</ref>


* The total amount of public and private debt in the world is now between two and three times the amount of [[broad money]] in circulation.<ref>Data sources:
=== Debt sustainability issues ===
{{cite web |last1=CIA |title=The World Factbook |url=https://www.cia.gov/library/publications/the-world-factbook |archive-url=https://web.archive.org/web/20070601020457/https://www.cia.gov/library/publications/the-world-factbook/ |url-status=dead |archive-date=1 June 2007 |website=Central Intelligence Agency |access-date=6 September 2018}}.
Since most money is created through commercial bank lending,<ref>{{Cite book |last=Kuzminski |first=Adrian |url=https://www.google.com/books/edition/The_Ecology_of_Money/VVWSAAAAQBAJ?hl=en&gbpv=1&dq=%22most+money%22+created+lending&pg=PA9&printsec=frontcover |title=The Ecology of Money: Debt, Growth, and Sustainability |date=2013-05-16 |publisher=Bloomsbury Publishing PLC |isbn=978-0-7391-7718-1 |language=en}}</ref> the total debt in the economy exceeds the money supply,<ref>{{Cite book |last=Budget |first=United States Congress House Committee on the |url=https://www.google.com/books/edition/Fiscal_Year_1977_Budget_and_the_Economy/TycAOucqigUC?hl=en&gbpv=1&dq=%22total+debt%22+%22money+supply%22&pg=PA281&printsec=frontcover |title=Fiscal Year 1977 Budget and the Economy: Hearings Before the Committee on the Budget, House of Representatives, Ninety-fourth Congress, Second Session ... |date=1976 |publisher=U.S. Government Printing Office |language=en}}</ref> challenging aggregate debt repayment.<ref>{{Cite book |last=Ravenhill |first=John |url=https://www.google.com/books/edition/Global_Political_Economy/FifgJSm8JasC?hl=en&gbpv=1&dq=%22debt+repayment%22+aggregate&pg=PA264&printsec=frontcover |title=Global Political Economy |date=2008 |publisher=OUP Oxford |isbn=978-0-19-929203-5 |language=en}}</ref> Foreign currency risk has led to mounting debt for developing countries and handing over national assets.<ref name="Werner2016">{{cite journal |last1=Werner |first1=Richard A. |date=2016 |title=A Lost Century in Economics: Three Theories of Banking and the Conclusive Evidence |journal=International Review of Financial Analysis |volume=46 |issue=July |pages=361–79 |doi=10.1016/j.irfa.2015.08.014 |hdl=2086/17270 |doi-access=free |hdl-access=free}}</ref>{{rp|375}}
{{cite web |last1=Desjardins |first1=Jeff |title=All of the World's Money and Markets in One Visualization |url=http://money.visualcapitalist.com/worlds-money-markets-one-visualization-2017/ |website=The Money Project |access-date=6 September 2018}}</ref> This is a result of the accumulated compound interest of credit money.{{citation needed|date=April 2021}} This counterintuitive fact makes it virtually impossible to repay all debt.{{citation needed|date=April 2021}} The mathematical consequence is that somebody will have to go bankrupt even if they have done nothing wrong. It seems unfair{{to whom|date=April 2021}} that somebody will become destitute as a consequence of the money system rather than because of their own reckless behavior.<ref name=BenesKumhof2012 /><ref name=DiMuzioRobbins /><ref  
name=HodgsonBrown>{{cite book |last1=Brown |first1=Ellen Hodgson |title=Web of Debt: The Shocking Truth about Our Money System and How We Can Break Free |date=2012 |publisher=Third Millennium Press |isbn=978-0983330851}}</ref>


* It is not only individual persons and businesses that go bankrupt as a consequence of the fact that there is more debt than money in circulation. Many states have gone [[sovereign default|bankrupt]] and some states have done so many times. The debt problem is particularly severe for [[Developing country|developing countries]] that have [[Debt of developing countries|debt in foreign currencies]]. The [[International Monetary Fund]] and the [[World Bank]] have been promoting loans to resource-rich developing countries for the expressed purpose of promoting economic growth in these countries, yet these loans were denominated in foreign currencies and most of the money were used for paying transnational entrepreneurs without ever entering the local economy. These countries have been forced to sell off national assets in order to service the debt.<ref name=Werner2016 /><ref  
This suggests constant economic growth is necessary,<ref>{{Cite book |last=Harrison |first=Neil E. |url=https://www.google.com/books/edition/Sustainable_Capitalism_and_the_Pursuit_o/oyJiAgAAQBAJ?hl=en&gbpv=1&dq=%22constant+economic+growth%22+necessary&pg=PT121&printsec=frontcover |title=Sustainable Capitalism and the Pursuit of Well-Being |date=2013-12-17 |publisher=Routledge |isbn=978-1-135-09745-5 |language=en}}</ref> with unsustainable resource consumption and environmental degradation.<ref>{{Cite book |last=Homer-Dixon |first=Thomas |url=https://www.google.com/books/edition/The_Upside_of_Down/rvk6tsE4UDcC?hl=en&gbpv=1&dq=%22constant+economic+growth%22+necessary&pg=PA192&printsec=frontcover |title=The Upside of Down: Catastrophe, Creativity, and the Renewal of Civilization |date=2010-04-16 |publisher=Island Press |isbn=978-1-59726-630-7 |language=en}}</ref> Labor-saving technologies are generally used to increase income and consumption not reduce hours of work.<ref>{{Cite book |last=Volti |first=Rudi |url=https://www.google.com/books/edition/Society_and_Technological_Change/in8CEQAAQBAJ?hl=en&gbpv=1&dq=technological+progress+labor-saving+not+leisure&pg=PA297&printsec=frontcover |title=Society and Technological Change: Ninth Edition |last2=Croissant |first2=Jennifer |date=2024-03-19 |publisher=Waveland Press |isbn=978-1-4786-5286-1 |language=en}}</ref>
name=HodgsonBrown /><ref name=DiMuzioRobbins /> Also a number of countries in the [[European Union]] are affected when a large part of the money circulating in the country originates from banks in other member countries. The spiraling, unpayable [[national debt]] has led to social chaos and even war in some cases.<ref name=zarlenga2002  /><ref  
name=Eisenstein2011>{{cite book |last1=Eisenstein |first1=Charles |title=Sacred Economics: Money, Gift, and Society in the Age of Transition |date=2011 |publisher=North Atlantic Books |isbn=978-1-58394-397-7}}</ref>


* A major part of all new credit money that is created is spent on changing the ownership of existing assets rather than creating new assets. This process inflates the prices of assets, including real estate, factories, land, and intellectual rights. This makes living unnecessarily costly for everybody. It contributes to growing inequality and it makes the economy unstable because of the creation of [[Economic bubble|asset bubbles]].<ref>Bezemer, Dirk, and Michael Hudson (2016) "Finance Is Not the Economy: Reviving the Conceptual Distinction." ''[[Journal of Economic Issues]]'', vol. 50 (3), pp. 745–768.</ref><ref  
=== Wealth distribution effects ===
name=JacksonDyson /><ref name=Korten2010>{{cite book |last1=Korten |first1=David C. |title=Agenda for a New Economy: From Phantom Wealth to Real Wealth |url=https://archive.org/details/Agenda_for_a_New_Economy_2nd_9781605093765 |url-access=registration |date=2010 |publisher=Berrett-Koehler Publishers}}</ref><ref name=DiMuzioRobbins />
Monetary reform advocates argue money creation through lending benefits those with access to credit.<ref>{{Cite book |last=Byttebier |first=Koen |url=https://www.google.com/books/edition/The_Tools_of_Law_that_Shape_Capitalism/3GGtDwAAQBAJ?hl=en&gbpv=1&dq=money+creation+access&pg=PA22&printsec=frontcover |title=The Tools of Law that Shape Capitalism: And How Altering Their Use Could Give Form to a More Just Society |date=2019-09-04 |publisher=Springer Nature |isbn=978-3-030-24182-7 |language=en}}</ref> while costing those holding cash.<ref>{{Cite book |last=Rahmatian |first=Andreas |url=https://www.google.com/books/edition/Credit_and_Creed/z365DwAAQBAJ?hl=en&gbpv=1&dq=%22money+creation%22+holding+cash+cost&pg=PT115&printsec=frontcover |title=Credit and Creed: A Critical Legal Theory of Money |date=2019-10-28 |publisher=Routledge |isbn=978-0-429-59484-7 |language=en}}</ref> Asset price inflation benefits owners while growing inequality.<ref>{{Cite book |last=Hahn |first=L. Albert |url=https://www.google.com/books/edition/Economic_Theory_of_Bank_Credit/CriYCgAAQBAJ?hl=en&gbpv=1&dq=inflation+credit+expansion+wage+earners&pg=PA163&printsec=frontcover |title=Economic Theory of Bank Credit |last2=Hagemann |first2=Harald |date=2015 |publisher=Oxford University Press |isbn=978-0-19-872307-3 |language=en}}</ref> Quantitative easing benefits asset holders, while those without benefit only if investment or consumption increases employment.<ref>{{Cite book |last=Watkins |first=John P. |url=https://www.google.com/books/edition/The_Origins_and_Evolution_of_Consumer_Ca/2FWtEAAAQBAJ?hl=en&gbpv=1&dq=quantitative+easing+asset+holders&pg=PA177&printsec=frontcover |title=The Origins and Evolution of Consumer Capitalism: A Veblenian-Keynesian Perspective |date=2023-04-11 |publisher=Taylor & Francis |isbn=978-0-429-81306-1 |language=en}}</ref>


* The exponentially increasing debt in society can only be serviced as long as the rate of economic growth exceeds the interest rate. This creates an imperative for perpetual growth in production and consumption. This leads to [[overconsumption]] and overexploitation of resources.<ref>Mellor, Mary (2010). ''The Future of Money: From Financial Crisis to Public Resource''. London.</ref> The technological progress in labor-saving technologies has not given us more leisure as we expected, because of the necessary growth in consumption.<ref name=Eisenstein2011 /><ref
Critics claim the privilege to create currency and charge interest enable banks to thrive at everyone else's expense.<ref>{{Cite book |last=Feinig |first=Jakob |url=https://www.google.com/books/edition/Moral_Economies_of_Money/pEuCEAAAQBAJ?hl=en&gbpv=1&dq=banks+rent+money+existence+of+money&pg=PT57&printsec=frontcover |title=Moral Economies of Money: Politics and the Monetary Constitution of Society |date=2022-10-04 |publisher=Stanford University Press |isbn=978-1-5036-3345-2 |language=en}}</ref> [[Wright Patman]] objected to governments paying interest for money created "out of nothing",<ref>{{Cite book |last=Jeffries |first=Donald |url=https://books.google.com/books?id=n5iSDwAAQBAJ&dq=money+out+of+nothing+%22Wright+Patman%22&pg=PT203 |title=Crimes and Cover-ups in American Politics: 1776-1963 |date=2019-06-18 |publisher=Simon and Schuster |isbn=978-1-5107-4148-5 |language=en}}</ref> making economic activity dependent on private bank self-interest.<ref>{{Cite book |last=Committee |first=United States Congress House Banking and Currency |url=https://www.google.com/books/edition/Extension_of_Small_Business_Act_of_1953/vW9FAQAAMAAJ?hl=en&gbpv=1&dq=Patman+economic+activity+private+bank+self-interest&pg=PA207&printsec=frontcover |title=Extension of Small Business Act of 1953: Hearings Before ... , 84-1 on H.R. 4525, H.R. 5207, H.R. 5729 ... , May 18 ... July 6, 1955 |date=1955 |language=en}}</ref>
name=JacksonDyson /><ref name=Korten2010 /><ref name=DiMuzioRobbins />


* The unpayable debt leads to [[Bankruptcy|bankruptcies]] of homeowners and [[foreclosure]] of their homes. This allows banks to replace their virtual assets in the form of money created 'out of thin air' with physical assets in the form of [[real estate]].<ref name=BenesKumhof2012 /><ref name=Eisenstein2011 /> In 1968, a court in Minnesota decided that this practice was [[Constitutionality|unconstitutional]] because the process by which the bank had created money from nothing was fraudulent (see [[First National Bank of Montgomery v. Daly]]).
== Arguments against reform ==


== Arguments against reform ==
=== Economic disruption risks ===
Among the arguments for keeping the current system of money creation based on the [[credit theory of money]] or [[fractional reserve banking]] are as follows:
Economists defending current systems claim transitioning to an untested financial system could create extreme uncertainty.<ref name="Jordan2018">[[Thomas Jordan (economist)|Thomas Jordan]], [https://snb.ch/en/mmr/speeches/id/ref_20180116_tjn/source/ref_20180116_tjn.en.pdf "How money is created by the central bank and the banking system"], [[Swiss National Bank]], 16 January 2018</ref> They say the current system allows consumers to afford the necessities of modern life. Financial instability is a risk for countries attempting unilateral reforms.<ref name="Bundesrat">{{cite book |last1=Schneider-Ammann |first1=Johann N. |url=https://www.admin.ch/opc/de/federal-gazette/2016/8475.pdf |title=Botschaft zur Volksinitiative "Für krisensicheres Geld: Geldschöpfung allein durch die Nationalbank! (Vollgeld-Initiative)" |last2=Thurnherr |first2=Walter |date=2016 |publisher=[[Federal Council (Switzerland)|Schweizerischer Bundesrat]]}}</ref>{{rp|23}}
 
The finance sector would be weakened because its profit is reduced.<ref name="Bundesrat" />{{rp|3}} Critics claim a sovereign money system would stimulate [[shadow banking]] and alternative means of payment.<ref>{{cite journal |last1=Fontana |first1=Giuseppe |last2=Sawyer |first2=Malcolm |date=2016 |title=Full Reserve Banking: More 'Cranks' than 'Brave Heretics' |url=https://academic.oup.com/cje/article/40/5/1333/1987666 |journal=Cambridge Journal of Economics |volume=40 |issue=5 |pages=1333–1350 |doi=10.1093/cje/bew016 |url-access=subscription}} [http://eprints.whiterose.ac.uk/103348/ Alt URL] See also {{cite journal |last1=Dyson |first1=Ben |last2=Hodgson |first2=Graham |last3=van Lerven |first3=Frank |date=2016 |title=A Response to Critiques of 'Full Reserve Banking' |journal=Cambridge Journal of Economics |volume=40 |issue=5 |pages=1351–1361 |doi=10.1093/cje/bew036}} and {{cite journal |last1=Fontana |first1=Giuseppe |last2=Hodgson |first2=Graham |date=2017 |title=A Rejoinder to 'A Response to Critiques of "Full Reserve Banking" |url=http://eprints.whiterose.ac.uk/119729/3/Rejoinder%2007%20July%202017%20Clear.pdf |journal=Cambridge Journal of Economics |volume=41 |issue=6 |pages=1741–1748 |doi=10.1093/cje/bex058}}</ref>


* Switching to an untested banking system that differs from that of other countries would lead to a situation of extreme uncertainty.<ref name=Jordan2018>[[Thomas Jordan (economist)|Thomas Jordan]], [https://snb.ch/en/mmr/speeches/id/ref_20180116_tjn/source/ref_20180116_tjn.en.pdf "How money is created by the central bank and the banking system"], [[Swiss National Bank]], 16 January 2018</ref><ref name=Bundesrat>{{cite book |last1=Schneider-Ammann |first1=Johann N. |last2=Thurnherr |first2=Walter |title=Botschaft zur Volksinitiative "Für krisensicheres Geld: Geldschöpfung allein durch die Nationalbank! (Vollgeld-Initiative)" |date=2016 |publisher=[[Federal Council (Switzerland)|Schweizerischer Bundesrat]] |url=https://www.admin.ch/opc/de/federal-gazette/2016/8475.pdf}}</ref>
In the traditional banking system, the central bank controls the [[interest rate]] while the money supply is determined by the market. In a sovereign money system, the central bank controls the money supply while the market controls the interest rate. In the traditional system, the need for investments determines the amount of credit that is issued. In a sovereign money system, the amount of saving determines the investments. This change of influences will generate a new and different system with its own dynamics and possible instabilities. The interest rate may fluctuate as well as the [[Market liquidity|liquidity]]. It is not certain that the market will find an equilibrium where the liquidity is sufficient for the needs of the [[Economy#Range|real economy]] and full employment.<ref>{{cite journal |last1=Dittmer |first1=Kristofer |date=2015 |title=100 percent reserve banking: A critical review of green perspectives |journal=Ecological Economics |volume=109 |pages=9–16 |bibcode=2015EcoEc.109....9D |doi=10.1016/j.ecolecon.2014.11.006}}</ref>
* A reform would make it difficult for the [[central bank]] to implement a [[monetary policy]] that secures [[price stability]].<ref name=Bundesrat />
* The [[money creation|creation of money]] free of debt would make it difficult for the central bank to later reduce the [[money supply]].<ref name=Bundesrat />
* The [[central bank]] would quite likely be subjected to political pressures for producing more money for whatever purpose is high on the political agenda. Giving in to such pressures would lead to [[inflation]].<ref name=Bundesrat />
* The finance sector would be weakened because its profit is reduced.<ref name=Bundesrat />
* A reform would not offer complete protection against [[Financial crisis|financial crises]] abroad.<ref name=Bundesrat />
* A reform would lead to an unhealthy concentration of power at the central bank. Critics doubt that the central bank can determine the required money supply better than the private banks can.<ref name=Jordan2018 /><ref
name=Birchler>{{cite book |last1=Birchler |first1=Urs |title=Vollgeld-Leitfaden |date=1 November 2017 |publisher=Institut für Banking und Finance, Universität Zürich |url=http://www.batz.ch/wp-content/uploads/2017/11/Vollgeld_Leifaden-1.pdf |access-date=11 September 2018}}</ref>
* The central bank may have to provide credit to commercial banks and accept the accompanying risk.<ref name=Jordan2018 />
* A sovereign money system would stimulate the creation of [[shadow banking]] and alternative means of payment.<ref>{{cite journal|last1=Fontana|first1=Giuseppe|last2=Sawyer|first2=Malcolm|date=2016|title=Full Reserve Banking: More 'Cranks' than 'Brave Heretics'|url=https://academic.oup.com/cje/article/40/5/1333/1987666|journal=Cambridge Journal of Economics|volume=40|issue=5|pages=1333–1350|doi=10.1093/cje/bew016|url-access=subscription}} [http://eprints.whiterose.ac.uk/103348/ Alt URL] See also {{cite journal|last1=Dyson|first1=Ben|last2=Hodgson|first2=Graham|last3=van Lerven|first3=Frank|date=2016|title=A Response to Critiques of 'Full Reserve Banking'|journal=Cambridge Journal of Economics|volume=40|issue=5|pages=1351–1361|doi=10.1093/cje/bew036}} and {{cite journal|last1=Fontana|first1=Giuseppe|last2=Hodgson|first2=Graham|date=2017|title=A Rejoinder to 'A Response to Critiques of "Full Reserve Banking"|journal=Cambridge Journal of Economics|volume=41|issue=6|pages=1741–1748|doi=10.1093/cje/bex058|url=http://eprints.whiterose.ac.uk/119729/3/Rejoinder%2007%20July%202017%20Clear.pdf}}</ref>
* In the traditional banking system, the central bank controls the [[interest rate]] while the money supply is determined by the market. In a sovereign money system, the central bank controls the money supply while the market controls the interest rate. In the traditional system, the need for investments determines the amount of credit that is issued. In a sovereign money system, the amount of saving determines the investments. This change of influences will generate a new and different system with its own dynamics and possible instabilities. The interest rate may fluctuate as well as the [[Market liquidity|liquidity]]. It is not certain that the market will find an equilibrium where the liquidity is sufficient for the needs of the [[Economy#Range|real economy]] and full employment.<ref  
name=Margeirsson>{{cite book |last1=Margeirsson |first1=Olafur |title=Financial Instability and Foreign Direct Investment |date=2014 |publisher=Doctoral dissertation, University of Exeter |pages=251–264 |url=https://ore.exeter.ac.uk/repository/bitstream/handle/10871/17436/MargeirssonO.pdf}}</ref><ref>{{cite journal |last1=Dittmer |first1=Kristofer |title=100 percent reserve banking: A critical review of green perspectives |journal=Ecological Economics |date=2015 |volume=109 |pages=9–16 |doi=10.1016/j.ecolecon.2014.11.006|bibcode=2015EcoEc.109....9D }}</ref>


==Alternative money systems==
=== Monetary policy effectiveness ===
{{See also|Modern monetary theory}}
Status quo advocates contend reforms would impair central bank ability to maintain price stability.<ref name="Bundesrat" />{{rp|2}} Separating money creation from lending would lead to a lack of experience estimating monetary expansion effects on prices.<ref name="Bundesrat" />{{rp|17}}
===Government Control vs Central Bank independence===
To regulate credit creation, some countries have created a [[currency board]], or granted independence to their [[central bank]].  The [[Reserve Bank of New Zealand]], the [[Reserve Bank of Australia]], the [[Federal Reserve]], and the [[Bank of England]] are examples where the [[central bank]] is explicitly given the power to set interest rates and conduct monetary policy independent of any direct political interference or direction from the [[central government]]. This may enable the setting of interest rates to be less susceptible to political interference and thereby assist in combating [[inflation]] (or debasement of the currency) by allowing the [[central bank]] to more effectively restrict the growth of [[money supply|M3]].<ref>[https://mises.org/story/2810 Manipulating the Interest Rate: a Recipe for Disaster], by Thorsten Polliet, December 2007</ref>


However, given that these policies do not address the more fundamental issues inherent in fractional reserve banking, many suggest that only more radical monetary reform such as government directly taking over central banks such as the China or Swiss models can promote positive economic or social change. Although [[central bank]]s may appear to control inflation, through periodic bank rescues and other means, they may inadvertently be forced to increase the [[money supply]] (and thereby debase the currency) to save the banking system from bankruptcy or collapse during periodic bank runs, thereby inducing [[moral hazard]] in the financial system, making the system susceptible to [[economic bubble]]s.<ref>[http://www.rgemonitor.com/blog/roubini/210283/ Moral Hazard Effects of Central Bank Intervention] {{webarchive|url=https://web.archive.org/web/20080324142328/http://www.rgemonitor.com/blog/roubini/210283 |date=24 March 2008 }}, by [[Nouriel Roubini]]</ref>
Critics doubt whether the central bank's tools for money supply are sufficient. The central bank may have to provide credit to commercial banks and accept the accompanying risk.<ref name="Birchler">{{cite book |last1=Birchler |first1=Urs |url=http://www.batz.ch/wp-content/uploads/2017/11/Vollgeld_Leifaden-1.pdf |title=Vollgeld-Leitfaden |date=1 November 2017 |publisher=Institut für Banking und Finance, Universität Zürich |access-date=11 September 2018}}</ref>{{rp|14}}


===International monetary reform===
=== Political economy concerns ===
Theorists such as [[Robert Mundell]] (and more radical thinkers such as [[James Robertson (activist)|James Robertson]]) see a role for global monetary reform as part of a system of global institutions alongside the [[United Nations]] to provide global [[ecological]] management and move towards [[world peace]], with [[Robert Mundell]] in particular advocating the revived use of gold as a stabilising factor in the international financial system.<ref>[http://www.usagold.com/gildedopinion/mundellgresham.html Uses and Abuses of Gresham's Law, by Robert Mundell]</ref><ref>[http://www.jamesrobertson.com/article/roleofmoneyandfinance.pdf The Role of Money, James Robertson]</ref> Henry Liu of the ''[[Asia Times Online]]'' argues that monetary reform is an important part of a move towards [[post-autistic economics]].<ref>[http://atimes.com/atimes/Global_Economy/JA30Dj03.html The Road to Hyperinflation] {{Webarchive|url=https://archive.today/20120629220416/http://atimes.com/atimes/Global_Economy/JA30Dj03.html|date=29 June 2012}}, [[Henry C.K. Liu]]</ref>
Critics claim direct distribution of newly created money risks high inflation if significant financing needs generate political pressure. They argue that central bank independence helps prevent inflation.<ref name="Bundesrat" />{{rp|12}}


While some mainstream economists{{who|date=April 2021}} favour monetary reforms to reduce [[inflation]] and [[currency risk]] and to increase [[efficiency (economics)|efficiency]] in the allocation of [[financial capital]], the idea of all-encompassing reform for green or peace objectives is typically espoused by those{{who|date=April 2021}} on the [[left-wing]] of the subject and those associated with the [[anti-globalization movement]].{{citation needed|date=April 2021}}
They worry about restrictions on economic freedom.<ref name="Bundesrat" />{{rp|10}}


===Commodity money===
== International perspectives ==
[[Newt Gingrich]] called for a commission on returning to a [[hard currency]] or asset-backed currency, which is often argued to be an antidote to [[inflation]].<ref>{{cite news |last1=Isidore |first1=Chris |title=Gingrich: U.S. should reconsider gold standard |url=https://money.cnn.com/2012/01/18/news/economy/gingrich_gold_standard/index.htm?iid=EL |work=CNNMoney}}</ref> This may involve using commodity money such as money backed by the [[Gold standard|gold]], [[Silver standard|silver]] or [[Bimetallism|both]], commodities which supporters argue possess unique properties:<ref>{{cite book |last1=Westerfield |first1=Ray Bert |title=Elements of money, credit, and banking |date=1921 |publisher=Ronald Press Company |url=https://books.google.com/books?id=nskZAAAAYAAJ&q=gold%20universal%20money |language=en}}</ref> their extraordinary [[malleability]], their strong resistance to [[forgery]], their character as stable and impervious to decay, and their inherently limited supply.<ref>[https://mises.org/library/theory-money-and-credit Theory of Money and Credit], [[Ludwig von Mises]] 1953</ref><ref>{{cite news |last1=Prada |first1=Luis |title=Gold Bars Are Worth $1 Million for the First Time |url=https://www.vice.com/en/article/gold-price-1-million-dollars/ |work=VICE |date=21 August 2024}}</ref>


===Social credit and the provision of debt-free money directly from government===
=== Developing country experiences ===
Still other radical reform proposals emphasise monetary, tax and capital budget reform which empowers government to direct the economy toward sustainable solutions which are not possible if government spending can only be financed with more government debt from the private banking system.  In particular, a number of monetary reformers, such as Michael Rowbotham, [[Stephen Zarlenga]] and [[Ellen Brown]], support the restriction or banning of fractional-reserve banking (characterizing it as an illegitimate banking practice akin to [[embezzlement]]) and advocate the replacement of fractional-reserve banking with government-issued debt-free [[fiat currency]] issued directly from the [[Treasury]] rather than from the quasi-government Federal Reserve.{{citation needed|date=April 2021}} [[Austrian School|Austrian commentator]] [[Gary North (economist)|Gary North]] has sharply criticized these views in his writings.<ref>[https://mises.org/books/coogan_north.pdf Gertrude Coogan's Bluff, Greenback Populism as Conservative Economics]</ref>
[[Michael Hudson (economist)|Michael Hudson]] criticized the [[World Bank]] and [[International Monetary Fund]] for reinforcing debt dependency.<ref>{{cite book |last1=Marsden |first1=Lee |url=https://www.google.com/books/edition/The_Ashgate_Research_Companion_to_Religi/6fvOCwAAQBAJ?hl=en&gbpv=1&dq=Michael+Hudson+IMF+debt+dependency&pg=PA216&printsec=frontcover |title=The Ashgate Research Companion to Religion and Conflict Resolution |date=23 March 2016 |publisher=Routledge |isbn=978-1-317-04183-2 |language=en}}</ref>


Alternatively, some monetary reformers such as those in the [[social credit]] movement, support the issuance of repayable interest-free credit from a government-owned central bank to fund infrastructure and sustainable social projects.  This social credit movement flourished briefly in the early 20th century, but then became marginalized. In Canada, it was [[Canadian social credit movement|an important political movement]] that [[Alberta Social Credit Party|ruled Alberta]] through nine legislatures between [[Alberta general election, 1935|1935]] and 1971, and also won many seats in [[List of Social Credit/Créditistes MPs|Québec]]. It died out in the 1980s.
Developing countries' external debt can harm local culture and the environment.<ref>{{Cite book |last=Perez |first=Oren |url=https://www.google.com/books/edition/Ecological_Sensitivity_and_Global_Legal/cM0iQc6LkRUC?hl=en&gbpv=1&dq=external+debt+destructive+local+cultures&pg=PA26&printsec=frontcover |title=Ecological Sensitivity and Global Legal Pluralism: Rethinking the Trade and Environment Conflict |date=June 2004 |publisher=Hart Publishing |isbn=978-1-84113-348-5 |language=en}}</ref> Countries have experimented with alternative monetary rules, often related to [[external debt]] and [[balance of payments]].<ref>{{Cite book |last=Sylla |first=Ndongo Samba |url=https://www.google.com/books/edition/Imperialism_and_the_Political_Economy_of/vji0EAAAQBAJ?hl=en&gbpv=1&dq=%22external+debt%22+%22balance+of+payments%22+alternative+monetary&pg=PA2018&printsec=frontcover |title=Imperialism and the Political Economy of Global South's Debt |date=2023-03-20 |publisher=Emerald Group Publishing |isbn=978-1-80262-485-4 |language=en}}</ref> These experiences can provide case studies for understanding monetary reform.<ref>{{Cite book |last=Kalyuzhnova |first=Y. |url=https://www.google.com/books/edition/Transitional_Economies/aVKGDAAAQBAJ?hl=en&gbpv=1&dq=%22case+studies%22+%22monetary+reform%22&pg=PA4&printsec=frontcover |title=Transitional Economies: Banking, Finance, Institutions |last2=Taylor |first2=M. |date=2001-07-19 |publisher=Springer |isbn=978-1-4039-0539-0 |language=en}}</ref>


Both these groups (those who advocate the replacement of fractional-reserve banking with debt-free government-issued fiat, and those who support the issuance of repayable interest-free credit from a government-owned [[central bank]]) see the provision of interest-free money as a way of freeing the working populace from the bonds of "[[debt slavery]]" and facilitating a transformation of the economy away from environmentally damaging [[consumerism]] and towards sustainable economic policies and environment-friendly business practices.{{citation needed|date=April 2021}}
Countries such as [[Ecuador]] and [[Zimbabwe]] used [[currency substitution]],<ref>{{Cite book |last=Jácome |first=Mr Luis Ignacio |url=https://www.google.com/books/edition/Implementing_Official_Dollarization/25MYEAAAQBAJ?hl=en&gbpv=1&dq=Ecuador+Zimbabwe+dollarization&pg=PA8&printsec=frontcover |title=Implementing Official Dollarization |last2=Lönnberg |first2=Åke |date=2010-04-01 |publisher=International Monetary Fund |isbn=978-1-4552-0065-8 |language=en}}</ref> while others have used [[Currency board|currency boards]] with loss of flexibility.<ref>{{Cite book |last=Perry |first=Guillermo |url=https://www.google.com/books/edition/Currency_Boards_and_External_Shocks/TKDG42uJFqsC?hl=en&gbpv=1&dq=currency+board+stability+flexibility&pg=PA1&printsec=frontcover |title=Currency Boards and External Shocks: How Much Pain, how Much Gain? |last2=Calvo |first2=Guillermo A. |date=1997-01-01 |publisher=World Bank Publications |isbn=978-0-8213-3864-3 |language=en}}</ref>


===Examples of government issued debt-free money===
=== Global monetary reform proposals ===
Some governments have experimented in the past with debt-free government-created money independent of a bank. The American Colonies used the "[[Colonial Scrip]]" system prior to the [[American Revolution|Revolution]], much to the praise of [[Benjamin Franklin]]. The paper money of Pennsylvania maintained its value for forty years.<ref>{{cite book |last1=Carey |first1=Lewis James |title=Franklin's Economic Views |date=1928 |publisher=Doubleday, Doran & Company |url=https://books.google.com/books?id=9U9wn2cG4JoC&q=%22maintain%20its%20value%22 |language=en}}</ref>
Proposed reforms to the international monetary system include expansion of [[special drawing rights]].<ref>{{Cite book |last=Xing |first=Li |url=https://www.google.com/books/edition/The_BRICS_and_Beyond/gem_CwAAQBAJ?hl=en&gbpv=1&dq=reform+expansion+%22special+drawing+rights%22&pg=PA119&printsec=frontcover |title=The BRICS and Beyond: The International Political Economy of the Emergence of a New World Order |date=2016-03-16 |publisher=Routledge |isbn=978-1-317-04000-2 |language=en}}</ref> Proposals seek to address imbalances due to US dollar centrality.<ref>{{Cite book |last=Zhang |first=Yuyan |url=https://www.google.com/books/edition/The_Change_of_Global_Economic_Governance/OgxqEAAAQBAJ?hl=en&gbpv=1&dq=reform+imbalances+dollar&pg=PA156&printsec=frontcover |title=The Change of Global Economic Governance and China |date=2022-04-11 |publisher=Springer Nature |isbn=978-981-19-0699-2 |language=en}}</ref> [[Robert Mundell]] proposed reforming the international monetary system with a [[world currency]].<ref>{{Cite book |last=Chen |first=Yunxian |url=https://www.google.com/books/edition/National_Finance/qQorEAAAQBAJ?hl=en&gbpv=1&dq=Robert+Mundell+global+%22monetary+reform%22+gold&pg=PA312&printsec=frontcover |title=National Finance: A Chinese Perspective |date=2021-04-23 |publisher=Springer Nature |isbn=978-981-336-092-1 |language=en}}</ref> [[James Robertson (activist)|James Robertson]] called for international financial system reform with green economics.<ref>{{Cite book |last=Cato |first=Molly Scott |url=https://www.google.com/books/edition/Green_Economics/VlDgCgAAQBAJ?hl=en&gbpv=1&dq=James+Robertson+ecological+global+monetary+reform&pg=PA71&printsec=frontcover |title=Green Economics: An Introduction to Theory, Policy and Practice |date=2012-05-16 |publisher=Routledge |isbn=978-1-136-56442-0 |language=en}}</ref>


[[Abraham Lincoln]] used interest-free money created by the government to help the Union win the [[American Civil War]]. Since greenbacks were not limited by gold, they fueled wartime prosperity among farmers and industrial growth.<ref>{{cite book |last1=Arnold |first1=James R. |last2=Wiener |first2=Roberta |title=American Civil War: The Essential Reference Guide |date=19 July 2011 |publisher=Bloomsbury Publishing USA |isbn=978-1-59884-906-6 |url=https://books.google.com/books?id=lEzEEAAAQBAJ&dq=%22The+Greenbacks:+Or,+The+Money+that+Won+the+Civil+War%22&pg=PA335 |language=en}}</ref>
The [[Economic and Monetary Union of the European Union]] was a significant innovation in international monetary reform,<ref>{{Cite book |last=Staab |first=Andreas |url=https://www.google.com/books/edition/The_European_Union_Explained/qNNnYC-8eo8C?hl=en&gbpv=1&dq=EMU+European+Union+%22most+significant%22&pg=PA22&printsec=frontcover |title=The European Union Explained: Institutions, Actors, Global Impact |date=2013-07-15 |publisher=Indiana University Press |isbn=978-0-253-00976-0 |language=en}}</ref> demonstrating the possibilities and challenges in economic policy coordination across member states.<ref>{{Cite book |last=Howarth |first=David |url=https://www.google.com/books/edition/Economic_and_Monetary_Union_at_Twenty/_6oeEAAAQBAJ?hl=en&gbpv=1&dq=Economic+and+Monetary+Union+of+the+European+Union+%22significant%22+reform&pg=PT22&printsec=frontcover |title=Economic and Monetary Union at Twenty: A Stocktaking of a Tumultuous Second Decade |last2=Verdun |first2=Amy |date=2021-05-19 |publisher=Routledge |isbn=978-1-000-38686-8 |language=en}}</ref>


===Free banking===
== Contemporary developments ==
[[Kevin Dowd]] favours permitting competing banks to issue private banknotes whilst also eliminating the central bank's role as [[lender of last resort]].<ref>{{cite web |title=What You Should Know about Free Banking History |url=https://www.cato.org/blog/what-you-should-know-about-free-banking-history |website=www.cato.org}}</ref> He describes a gold standard as a "natural choice."<ref>{{cite web |title=Easy Money and the Decapitalization of America |url=https://www.cato.org/policy-report/january/february-2011/easy-money-decapitalization-america# |website=www.cato.org}}</ref>


[[Electronic money|Digital means]] are also now possible to allow trading in hard currencies such as gold, and some believe a new free market will emerge in money production and distribution, as the [[internet]] allows renewed decentralisation and competition in this area, eroding the [[central government]]'s and bankers' old [[monopoly]] control of the [[means of exchange]].<ref>[http://www.lewrockwell.com/podcast/?p=episode&name=2009-02-01_095_not_losing_your_head.mp3 ''Not Losing Your Head''] {{webarchive|url=https://web.archive.org/web/20090416083310/http://lewrockwell.com/podcast/?p=episode&name=2009-02-01_095_not_losing_your_head.mp3 |date=16 April 2009 }}, Speech by [[Lew Rockwell]]</ref><ref>[https://www.mises.org/store/Free-Market-Monetary-System-A-P553.aspx?AFID=14 ''Free Market Money System''] by [[F.A. Hayek]]</ref>
=== Central Bank Digital Currencies (CBDCs) ===
CBDCs represent a significant contemporary development in monetary reform.<ref>{{Cite web |last=Robinson |first=Steve |date=2023-03-21 |title=DeSantis Wants to Ban CBDCs; Maine Lawmaker Wants to Support Them |url=https://www.themainewire.com/2023/03/desantis-wants-to-ban-cbdcs-maine-lawmaker-wants-to-support-them/ |access-date=2025-08-20 |website=The Maine Wire |language=en-US}}</ref> The emergence of [[central bank digital currency]] (CBDC) has created new possibilities for monetary reform.<ref>{{Cite book |last=Ashmarina |first=Svetlana Igorevna |url=https://www.google.com/books/edition/Economic_Systems_in_the_New_Era_Stable_S/FkoCEAAAQBAJ?hl=en&gbpv=1&dq=CBDC+%22monetary+reform%22&pg=PA497&printsec=frontcover |title=Economic Systems in the New Era: Stable Systems in an Unstable World |last2=Horák |first2=Jakub |last3=Vrbka |first3=Jaromír |last4=Šuleř |first4=Petr |date=2020-10-10 |publisher=Springer Nature |isbn=978-3-030-60929-0 |language=en}}</ref> CBDCs could enhance monetary policy effectiveness and allow more control over distribution.<ref>{{Cite book |last=Maggio |first=Marco Di |url=https://www.google.com/books/edition/Blockchain_Crypto_and_DeFi/CX4ZEQAAQBAJ?hl=en&gbpv=1&dq=CBDC+direct+control+money+creation+distribution&pg=PA238&printsec=frontcover |title=Blockchain, Crypto and DeFi: Bridging Finance and Technology |date=2024-10-01 |publisher=John Wiley & Sons |isbn=978-1-394-27589-2 |language=en}}</ref>


===Local barter, local currency===
134 countries with 98% of world GDP are evaluating a national digital currency.<ref>{{Cite book |last=Rosa |first=Brunello |url=https://www.google.com/books/edition/Smart_Money/a-gmEQAAQBAJ?hl=en&gbpv=1&dq=digital+currency+134+countries+98+percent&pg=PT24&printsec=frontcover |title=Smart Money: How Digital Currencies Will Shape the New World Order |last2=Larsen |first2=Casey |date=2024-10-24 |publisher=Bloomsbury Publishing |isbn=978-1-5266-7851-5 |language=en}}</ref> The [[Central Bank of the Bahamas#Digital Currency|Bahamas]], [[Bank of Jamaica|Jamaica]], and [[ENaira|Nigeria]] have launched CBDCs.<ref>{{Cite web |date=2024-09-17 |title=Central bank digital currency momentum growing, study shows |url=https://www.cnbcafrica.com/2024/central-bank-digital-currency-momentum-growing-study-shows/ |access-date=2025-08-20 |website=www.cnbcafrica.com}}</ref> CBDCs could provide government-issued digital currency directly to the public.<ref>{{Cite book |last=Grima |first=Simon |url=https://www.google.com/books/edition/The_New_Digital_Era/Sh-HEAAAQBAJ?hl=en&gbpv=1&dq=CBDC+government-issued+digital+money&pg=PT68&printsec=frontcover |title=The New Digital Era: Digitalisation, Emerging Risks and Opportunities |last2=Özen |first2=Ercan |last3=Boz |first3=Hakan |date=2022-09-15 |publisher=Emerald Group Publishing |isbn=978-1-80382-981-4 |language=en}}</ref>
[[Paul Hawken]] suggests wholesale reform of money and currency, based on ideas from [[green economics]] or [[Natural Capitalism]], would be beneficial.<ref>{{cite book |last1=Berghoff |first1=Hartmut |last2=Rome |first2=Adam |title=Green Capitalism?: Business and the Environment in the Twentieth Century |date=2 May 2017 |publisher=University of Pennsylvania Press |isbn=978-0-8122-4901-9 |url=https://books.google.com/books?id=_DWXDgAAQBAJ&dq=%22Paul+Hawken+and+others+suggest%22&pg=PA14 |language=en}}</ref> These include the ideas of [[soft currency]], [[barter (economics)|barter]] and the local [[service economy]].


[[Local currency]] systems can operate within small communities, outside of government systems, and use specially printed notes or tokens called [[scrip]]s for exchange. [[Barter (economics)|Barter]] takes this further by swapping goods and services directly; a compromise being the [[Local Exchange Trading Systems]] (LETS) scheme: a formalised system of [[community-based economics]] that records members' [[mutual credit]] in a central location.
The design choices for CBDCs vary significantly, including decisions about privacy, programmability, offline functionality, and intermediation models.<ref>{{Cite book |last=Guneet |first=Kaur |url=https://www.google.com/books/edition/Exploring_Central_Bank_Digital_Currencie/pAj6EAAAQBAJ?hl=en&gbpv=1&dq=CBDC+design+vary+privacy+programmability&pg=PA204&printsec=frontcover |title=Exploring Central Bank Digital Currencies: Concepts, Frameworks, Models, and Challenges: Concepts, Frameworks, Models, and Challenges |last2=Pooja |first2=Lekhi |last3=Simriti |first3=Popli |date=2024-03-07 |publisher=IGI Global |isbn=979-8-3693-1883-6 |language=en}}</ref><ref>{{Cite book |last=Tyagi |first=Pallavi |url=https://www.google.com/books/edition/Smart_Analytics_Artificial_Intelligence/Guu_EAAAQBAJ?hl=en&gbpv=1&dq=CBDC+design+offline+intermediation&pg=PT164&printsec=frontcover |title=Smart Analytics, Artificial Intelligence and Sustainable Performance Management in a Global Digitalised Economy |last2=Grima |first2=Simon |last3=Sood |first3=Kiran |last4=Baluswamy |first4=Balamurugan |last5=Ozen |first5=Ercan |last6=Thalassinos |first6=Eleftherios I. |date=2023-05-29 |publisher=Emerald Group Publishing |isbn=978-1-83753-418-0 |language=en}}</ref> These choices have profound implications for monetary policy effectiveness, financial stability, and individual privacy.<ref>{{Cite book |last=Guneet |first=Kaur |url=https://www.google.com/books/edition/Exploring_Central_Bank_Digital_Currencie/pAj6EAAAQBAJ?hl=en&gbpv=1&dq=CBDC+design+monetary+policy+effectiveness&pg=PA161&printsec=frontcover |title=Exploring Central Bank Digital Currencies: Concepts, Frameworks, Models, and Challenges: Concepts, Frameworks, Models, and Challenges |last2=Pooja |first2=Lekhi |last3=Simriti |first3=Popli |date=2024-03-07 |publisher=IGI Global |isbn=979-8-3693-1883-6 |language=en}}</ref>


===Demurrage currency===
=== Post-crisis reform efforts ===
{{Excerpt|Demurrage currency}}
Following the [[2008 financial crisis]], reforms such as [[Basel III]], increased [[Capital requirement|capital requirements]] for banks.<ref>{{Cite book |last=Barton |first=Uzma Ashraf |url=https://www.google.com/books/edition/Rethinking_Regulation_of_International_F/Ho2WDwAAQBAJ?hl=en&gbpv=1&dq=2008+reform+capital+requirement&pg=PT174&printsec=frontcover |title=Rethinking Regulation of International Finance: Law, Policy and Institutions |date=2016-04-24 |publisher=Kluwer Law International B.V. |isbn=978-90-411-8918-9 |language=en}}</ref> While some economists argue they have reduced systemic risk,<ref>{{Cite book |last=Arner |first=Douglas W. |url=https://www.google.com/books/edition/Systemic_Risk_in_the_Financial_Sector/ztCwDwAAQBAJ?hl=en&gbpv=1&dq=Basel+III+systemic+risk&pg=PA231&printsec=frontcover |title=Systemic Risk in the Financial Sector: Ten Years After the Great Crash |last2=Avgouleas |first2=Emilios |last3=Busch |first3=Danny |last4=Schwarcz |first4=Steven L. |date=2019-10-02 |publisher=McGill-Queen's Press - MQUP |isbn=978-1-928096-91-7 |language=en}}</ref> others call for more fundamental reform to address structural problems.<ref>{{Cite book |last=Gevorkyan |first=Aleksandr V. |url=https://www.google.com/books/edition/Financial_Deepening_and_Post_Crisis_Deve/VjljDAAAQBAJ?hl=en&gbpv=1&dq=Basel+III+structural+problem&pg=PA31&printsec=frontcover |title=Financial Deepening and Post-Crisis Development in Emerging Markets: Current Perils and Future Dawns |last2=Canuto |first2=Otaviano |date=2016-06-14 |publisher=Springer |isbn=978-1-137-52246-7 |language=en}}</ref>


==See also==
==See also==
Line 128: Line 149:
* [[Money creation]]
* [[Money creation]]
* [[Credit theory of money]]
* [[Credit theory of money]]
* [[Money as Debt]]
* [[Fractional-reserve banking#Commentary|Criticisms of debt]]
* [[Fractional-reserve banking#Commentary|Criticism of fractional-reserve banking]]
* [[Fractional-reserve banking#Commentary|Criticism of fractional-reserve banking]]
* [[Full-reserve banking]]
* [[Criticism of the Federal Reserve]]
* [[Monetary reform in Britain]]
* [[Monetary reform in Britain]]
* [[Monetary reform in the United States]]
* [[Monetary reform in the United States]]
* [[Money Free movement]]
* [[Swiss sovereign-money initiative, 2018]]
* [[Modern Monetary Theory]]
* [[Modern Monetary Theory]]
* [[Seignorage]]
* [[Central bank digital currency]]
* ''[[Money as Debt]]'' three-film series
* [[Financial system]]
* [[Universal basic income]]
* [[Banking regulation and supervision]]
{{div col end}}
{{div col end}}


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==Further reading==
==Further reading==
*[https://www.mises.org/Books/mysteryofbanking.pdf ''The Mystery of Banking''], [[Murray Rothbard]]
*[https://mises.org/books/moneyproduction.pdf ''The Ethics of Money Production''], [[Jörg Guido Hülsmann]] (2008), Ludwig von Mises Institute
*[https://mises.org/books/moneyproduction.pdf ''The Ethics of Money Production''], [[Jörg Guido Hülsmann]] (2008), Ludwig von Mises Institute
*[https://www.scribd.com/doc/39119894/100-Money-and-the-Public-Debt "100% Money and the Public Debt"], [[Irving Fisher]] (public domain)
*[https://www.scribd.com/doc/39119894/100-Money-and-the-Public-Debt "100% Money and the Public Debt"], [[Irving Fisher]] (public domain)

Latest revision as of 00:08, 21 August 2025

Template:Short description

  1. REDIRECT Template:Pp-sock

Template:Use dmy dates Template:Sidebar with collapsible lists Monetary reform refers to proposals to change a country's monetary system, including how money is created, regulated, and distributed. Such reforms seek to address perceived problems with current monetary schemes, like financial instability, wealth inequality, or inflation. Monetary reform movements grow during economic crises, proposing alternatives to prevailing systems.

Reforms range widely from a return to commodity-backed currencies like the gold standard to more radical changes like full reserve banking or government-issued debt-free money. Some reforms seek technical adjustments to existing systems, while others propose to fundamentally restructure money's economic functions.

Historical context

Monetary reform movements gain prominence during periods of economic instability.[1][2] The Great Depression sparked reform proposals including the Chicago plan.[3] Similarly, the 2008 financial crisis renewed interest in alternatives like sovereign money systems,[4] while the COVID-19 pandemic further increased debates about monetary system design.[5]

Monetary system evolution's major transitions included from the gold standard to the Bretton Woods system to current fiat money.[6] Each transition has generated debate about the optimal monetary arrangement for economic stability and growth.[7][8]

Types of monetary reform

Gold standard

Script error: No such module "Labelled list hatnote". The gold standard linked currency values to gold reserves. Under this monetary system, paper money was convertible to fixed amounts of gold, anchoring currency values. The classical gold standard functioned internationally from the 1870s to World War I, with a modified version under the Bretton Woods system.[9]

Proponents' arguments include that currencies backed by gold had more stability than fiat money.[10] They argue required gold reserves limited financing expenditures through money creation.[11] Austrian school economists have advocated returning to gold-backed currencies to prevent inflation.[12]

Critics' arguments center on monetary policy constraints during economic downturns. Mainstream economists note the gold standard may have prolonged the Great Depression by preventing money supply expansion to fight deflation. Countries that abandoned the gold standard earlier in the Great Depression recovered more quickly.[13]

Full reserve banking

Script error: No such module "Labelled list hatnote". Full reserve banking proposals would require banks to hold 100% reserves for customer deposits, eliminating fractional-reserve banking currently used worldwide.[14] In a full reserve system, banks would operate as intermediaries not creators of credit.[15]

Theoretical foundation: The Chicago plan, designed by University of Chicago economists,[3] spurred academic attention. The plan would separate monetary and credit functions, transferring money creation to government control.[16]

Proponents' arguments include the elimination of bank runs, as banks would have reserves to meet all withdrawals.[17] They argue it would reduce systemic risk[18] and provide governments greater control over the money supply.[19]

Critics' arguments focus on potential economic disruption and reduced credit access. They suggest full reserve banking could drive borrowers to the shadow banking system.[20] Mainstream economists express concern about reduced capital allocation efficiency, as well as transition costs and potential unintended consequences.[21]

Sovereign money

Script error: No such module "Labelled list hatnote". Sovereign money systems propose transferring money creation from commercial banks to government institutions like central banks. Under the current system, commercial banks create money through loans;[22] sovereign money would make money creation a government monopoly.[23]

Theoretical basis: Proponents argue money creation should be a public function rather than a private one. They propose that government created money could be spent into circulation for public purposes instead of private bank profit.[24]

Policy examples: Switzerland held the 2018 Swiss sovereign-money initiative,[25] which did not pass. Iceland considered a similar proposal following the 2008–2011 Icelandic financial crisis.[4] These real-world applications provide insight into political and implementation challenges.

Economic analysis: Supporters argue sovereign money could provide better control over they money supply and reduce debt burden.[26] Critics claim asset bubbles may still be possible.[27] The Swiss National Bank opposed the initiative claiming lack of expertise and resources.[28]

Social credit

Script error: No such module "Labelled list hatnote". Social credit theory, developed by C. H. Douglas starting in the 1920s, proposes that governments issue money directly to citizens as a social dividend.[29] This would supplement wages and fill the deficit of purchasing power to a "just" price of goods and services.[30] Maurice Reckitt said the community would issue its own credit, enabling goods to be sold below cost.[31]

The Social Credit Party of Canada gained power in Alberta in 1935,[32] governing for decades.[33] Mainstream economists did not accept social credit, claiming it was inflationary.[34]

Related proposals advocate for the government issuing interest-free money for infrastructure. Proponents seek to prevent inflation by withdrawing the credit from circulation as the loan is repaid.[35] Historical examples of government-issued interest-free money include American Revolution continentals[36] and American Civil War greenbacks.[37]

Alternative currency systems

Demurrage currency

Script error: No such module "Labelled list hatnote". Demurrage currency is designed to lose value over time, encouraging circulation not hoarding.[38] Economist Silvio Gesell sought to boost velocity, requiring periodic stamps to keep the money valid.[39]

Historical examples include the Wära in Germany. It had led to modest economic prosperity before it was forbidden by the finance ministry.[40]

Despite their success, most demurrage currencies were banned by central banks for violating national monopolies on currency.[41] Contemporary versions include complementary currency[42] and negative interest rate proposals.[43]

Local currencies

Script error: No such module "Labelled list hatnote". Local currencies and local exchange trading system (LETS) create community-based alternatives to national currencies.[44] These systems aim to improve the economy in local communities and can include features like demurrage.[45] Examples include Ithaca Hours in New York and time banks.[46]

Free banking

Script error: No such module "Labelled list hatnote".Free banking proposals would allow private bank issued currencies, eliminating central bank restrictions on money creation.[47] Proponents argue competition creates pressure for stable currencies,[48] while critics raise coordination problems.[49]

Contemporary catalysts for reform

COVID and monetary policy

The COVID-19 pandemic prompted unprecedented monetary policy responses, including massive quantitative easing (QE) programs by major central banks.[50] Rising inflation in 2022 led most central banks to switch to quantitative tightening.[51]

The inflation surge reignited debates about:

Arguments for reform

Financial stability concerns

Monetary reform advocates often cite financial instability to justify systemic change.[56] They argue fractional reserve creates a mismatch between liquid deposits and illiquid loans.[57] This can lead to bank runs and government interventions during crises.[58]

Procyclical bank lending expands credit during booms, contributing to asset bubbles, followed by a drop in credit during busts, amplifying economic downturns.[59] The money supply is created by bank lending, and central banks have limited ability to stop booms with higher capital requirements.[60]

Debt sustainability issues

Since most money is created through commercial bank lending,[61] the total debt in the economy exceeds the money supply,[62] challenging aggregate debt repayment.[63] Foreign currency risk has led to mounting debt for developing countries and handing over national assets.[64]Template:Rp

This suggests constant economic growth is necessary,[65] with unsustainable resource consumption and environmental degradation.[66] Labor-saving technologies are generally used to increase income and consumption not reduce hours of work.[67]

Wealth distribution effects

Monetary reform advocates argue money creation through lending benefits those with access to credit.[68] while costing those holding cash.[69] Asset price inflation benefits owners while growing inequality.[70] Quantitative easing benefits asset holders, while those without benefit only if investment or consumption increases employment.[71]

Critics claim the privilege to create currency and charge interest enable banks to thrive at everyone else's expense.[72] Wright Patman objected to governments paying interest for money created "out of nothing",[73] making economic activity dependent on private bank self-interest.[74]

Arguments against reform

Economic disruption risks

Economists defending current systems claim transitioning to an untested financial system could create extreme uncertainty.[75] They say the current system allows consumers to afford the necessities of modern life. Financial instability is a risk for countries attempting unilateral reforms.[76]Template:Rp

The finance sector would be weakened because its profit is reduced.[76]Template:Rp Critics claim a sovereign money system would stimulate shadow banking and alternative means of payment.[77]

In the traditional banking system, the central bank controls the interest rate while the money supply is determined by the market. In a sovereign money system, the central bank controls the money supply while the market controls the interest rate. In the traditional system, the need for investments determines the amount of credit that is issued. In a sovereign money system, the amount of saving determines the investments. This change of influences will generate a new and different system with its own dynamics and possible instabilities. The interest rate may fluctuate as well as the liquidity. It is not certain that the market will find an equilibrium where the liquidity is sufficient for the needs of the real economy and full employment.[78]

Monetary policy effectiveness

Status quo advocates contend reforms would impair central bank ability to maintain price stability.[76]Template:Rp Separating money creation from lending would lead to a lack of experience estimating monetary expansion effects on prices.[76]Template:Rp

Critics doubt whether the central bank's tools for money supply are sufficient. The central bank may have to provide credit to commercial banks and accept the accompanying risk.[79]Template:Rp

Political economy concerns

Critics claim direct distribution of newly created money risks high inflation if significant financing needs generate political pressure. They argue that central bank independence helps prevent inflation.[76]Template:Rp

They worry about restrictions on economic freedom.[76]Template:Rp

International perspectives

Developing country experiences

Michael Hudson criticized the World Bank and International Monetary Fund for reinforcing debt dependency.[80]

Developing countries' external debt can harm local culture and the environment.[81] Countries have experimented with alternative monetary rules, often related to external debt and balance of payments.[82] These experiences can provide case studies for understanding monetary reform.[83]

Countries such as Ecuador and Zimbabwe used currency substitution,[84] while others have used currency boards with loss of flexibility.[85]

Global monetary reform proposals

Proposed reforms to the international monetary system include expansion of special drawing rights.[86] Proposals seek to address imbalances due to US dollar centrality.[87] Robert Mundell proposed reforming the international monetary system with a world currency.[88] James Robertson called for international financial system reform with green economics.[89]

The Economic and Monetary Union of the European Union was a significant innovation in international monetary reform,[90] demonstrating the possibilities and challenges in economic policy coordination across member states.[91]

Contemporary developments

Central Bank Digital Currencies (CBDCs)

CBDCs represent a significant contemporary development in monetary reform.[92] The emergence of central bank digital currency (CBDC) has created new possibilities for monetary reform.[93] CBDCs could enhance monetary policy effectiveness and allow more control over distribution.[94]

134 countries with 98% of world GDP are evaluating a national digital currency.[95] The Bahamas, Jamaica, and Nigeria have launched CBDCs.[96] CBDCs could provide government-issued digital currency directly to the public.[97]

The design choices for CBDCs vary significantly, including decisions about privacy, programmability, offline functionality, and intermediation models.[98][99] These choices have profound implications for monetary policy effectiveness, financial stability, and individual privacy.[100]

Post-crisis reform efforts

Following the 2008 financial crisis, reforms such as Basel III, increased capital requirements for banks.[101] While some economists argue they have reduced systemic risk,[102] others call for more fundamental reform to address structural problems.[103]

See also

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Notes

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References

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  1. ↑ Script error: No such module "citation/CS1".
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  27. ↑ Script error: No such module "citation/CS1".
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  30. ↑ Script error: No such module "citation/CS1".
  31. ↑ Script error: No such module "citation/CS1".
  32. ↑ Script error: No such module "citation/CS1".
  33. ↑ Script error: No such module "citation/CS1".
  34. ↑ Script error: No such module "citation/CS1".
  35. ↑ Script error: No such module "citation/CS1".
  36. ↑ Script error: No such module "citation/CS1".
  37. ↑ Script error: No such module "citation/CS1".
  38. ↑ Script error: No such module "citation/CS1".
  39. ↑ Script error: No such module "citation/CS1".
  40. ↑ Script error: No such module "citation/CS1".
  41. ↑ Script error: No such module "citation/CS1".
  42. ↑ Script error: No such module "citation/CS1".
  43. ↑ Script error: No such module "citation/CS1".
  44. ↑ Script error: No such module "citation/CS1".
  45. ↑ Script error: No such module "citation/CS1".
  46. ↑ Script error: No such module "citation/CS1".
  47. ↑ Script error: No such module "citation/CS1".
  48. ↑ Script error: No such module "citation/CS1".
  49. ↑ Script error: No such module "citation/CS1".
  50. ↑ Script error: No such module "citation/CS1".
  51. ↑ Script error: No such module "citation/CS1".
  52. ↑ Script error: No such module "citation/CS1".
  53. ↑ Script error: No such module "citation/CS1".
  54. ↑ Script error: No such module "citation/CS1".
  55. ↑ Script error: No such module "citation/CS1".
  56. ↑ Script error: No such module "citation/CS1".
  57. ↑ Script error: No such module "citation/CS1".
  58. ↑ Script error: No such module "citation/CS1".
  59. ↑ Script error: No such module "citation/CS1".
  60. ↑ Script error: No such module "Citation/CS1".
  61. ↑ Script error: No such module "citation/CS1".
  62. ↑ Script error: No such module "citation/CS1".
  63. ↑ Script error: No such module "citation/CS1".
  64. ↑ Script error: No such module "Citation/CS1".
  65. ↑ Script error: No such module "citation/CS1".
  66. ↑ Script error: No such module "citation/CS1".
  67. ↑ Script error: No such module "citation/CS1".
  68. ↑ Script error: No such module "citation/CS1".
  69. ↑ Script error: No such module "citation/CS1".
  70. ↑ Script error: No such module "citation/CS1".
  71. ↑ Script error: No such module "citation/CS1".
  72. ↑ Script error: No such module "citation/CS1".
  73. ↑ Script error: No such module "citation/CS1".
  74. ↑ Script error: No such module "citation/CS1".
  75. ↑ Thomas Jordan, "How money is created by the central bank and the banking system", Swiss National Bank, 16 January 2018
  76. ↑ a b c d e f Script error: No such module "citation/CS1".
  77. ↑ Script error: No such module "Citation/CS1". Alt URL See also Script error: No such module "Citation/CS1". and Script error: No such module "Citation/CS1".
  78. ↑ Script error: No such module "Citation/CS1".
  79. ↑ Script error: No such module "citation/CS1".
  80. ↑ Script error: No such module "citation/CS1".
  81. ↑ Script error: No such module "citation/CS1".
  82. ↑ Script error: No such module "citation/CS1".
  83. ↑ Script error: No such module "citation/CS1".
  84. ↑ Script error: No such module "citation/CS1".
  85. ↑ Script error: No such module "citation/CS1".
  86. ↑ Script error: No such module "citation/CS1".
  87. ↑ Script error: No such module "citation/CS1".
  88. ↑ Script error: No such module "citation/CS1".
  89. ↑ Script error: No such module "citation/CS1".
  90. ↑ Script error: No such module "citation/CS1".
  91. ↑ Script error: No such module "citation/CS1".
  92. ↑ Script error: No such module "citation/CS1".
  93. ↑ Script error: No such module "citation/CS1".
  94. ↑ Script error: No such module "citation/CS1".
  95. ↑ Script error: No such module "citation/CS1".
  96. ↑ Script error: No such module "citation/CS1".
  97. ↑ Script error: No such module "citation/CS1".
  98. ↑ Script error: No such module "citation/CS1".
  99. ↑ Script error: No such module "citation/CS1".
  100. ↑ Script error: No such module "citation/CS1".
  101. ↑ Script error: No such module "citation/CS1".
  102. ↑ Script error: No such module "citation/CS1".
  103. ↑ Script error: No such module "citation/CS1".

Script error: No such module "Check for unknown parameters".

Further reading

External links

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