Modernising Money

What is "Modernising Money" by Andrew Jackson about?

• Critical examination of money: The book analyzes how the UK’s monetary system works, focusing on the fact that private banks create most of the money supply through lending.
• Problems and consequences: It argues that this system leads to economic instability, inequality, and environmental harm, and is fundamentally undemocratic.
• Proposed reforms: The authors propose a new system where only the state creates money, aiming for a stable, democratic, and sustainable economy.

Why should I read "Modernising Money" by Andrew Jackson?

• Reveals hidden truths: The book uncovers that over 97% of money is created by private banks, not the government, challenging common misconceptions.
• Connects money to real issues: It links the monetary system to financial crises, housing bubbles, inequality, and environmental degradation.
• Offers practical solutions: Readers gain a clear, actionable roadmap for reforming the monetary system to address these systemic problems.

What are the key takeaways from "Modernising Money" by Andrew Jackson?

• Private banks create money: The current system allows banks to create money through lending, which drives instability and inequality.
• Systemic consequences: This structure fuels boom-bust cycles, asset bubbles, and rising debt, while undermining democracy and transparency.
• Reform is possible: The book outlines a detailed plan to transfer money creation to a public body, separate payment and lending functions, and stabilize the economy.

How does money creation work in the current system, according to "Modernising Money"?

• Bank lending creates deposits: When banks issue loans, they simultaneously create new deposits, effectively generating new money out of nothing.
• No need for prior savings: Banks do not lend out existing deposits; they create new money with each loan, increasing both the money supply and debt.
• Central bank reserves: Reserves are used for interbank payments but are not a constraint on lending, as the central bank supplies them as needed.

What are the main problems with the current monetary system identified by Andrew Jackson?

• Bank dominance: Private banks’ ability to create money gives them excessive power and distorts lending toward unproductive uses like mortgages.
• Economic instability: The system encourages excessive risk-taking, leading to cycles of booms, busts, and financial crises.
• Inequality and democratic deficit: Wealth is transferred to banks and asset owners, increasing inequality and reducing public control over money.

How does the current monetary system contribute to economic instability and inequality, according to "Modernising Money"?

• Asset bubbles and booms: Most bank lending goes into property and financial speculation, inflating asset prices without boosting productive investment.
• Debt-driven growth: Money is created as debt, requiring ever-increasing borrowing and making debt reduction difficult without shrinking the money supply.
• Wealth transfer: Interest payments and rising asset prices benefit the wealthy, exacerbating inequality and making essentials like housing less affordable.

What is the alternative monetary system proposed in "Modernising Money" by Andrew Jackson?

• State-controlled money creation: Only the central bank would create both physical and electronic money, ending commercial banks’ ability to create money through lending.
• Two types of accounts: Customers would have risk-free Transaction Accounts for payments and risk-bearing Investment Accounts for lending and investment.
• Banks as intermediaries: Banks would act as brokers, lending only pre-existing money from Investment Accounts, stabilizing the money supply.

How do Transaction Accounts and Investment Accounts function in Andrew Jackson’s proposed system?

• Transaction Accounts: Hold state-issued, risk-free electronic money at the central bank, ensuring safety even if banks fail.
• Investment Accounts: Allow customers to invest money for banks to lend, with returns and risks aligned to investment performance and fixed terms.
• Separation of functions: This structure protects payment systems from bank failures and prevents banks from creating money through lending.

Who decides how much new money is created in the reformed system described in "Modernising Money"?

• Money Creation Committee (MCC): An independent, politically neutral body would determine the amount of new money to create, targeting stable inflation.
• Separation of powers: The MCC decides the quantity, while the government decides how to spend it, preventing politicization of money creation.
• Transparency and oversight: The MCC’s decisions are public and accountable to a cross-party parliamentary group, ensuring democratic control.

How would new money be injected into the economy under Andrew Jackson’s reforms?

• Government spending: The MCC could grant new money to the government for public services or infrastructure, stimulating the economy without increasing debt.
• Tax cuts or direct payments: New money could also be used for tax reductions or distributed directly to citizens as a ‘citizen’s dividend.’
• Productive business lending: The MCC could lend new money to banks specifically for on-lending to productive businesses, supporting real economic growth.

What are the expected economic impacts of the reforms proposed in "Modernising Money"?

• Reduced instability: Removing banks’ ability to create money would lessen boom-bust cycles, asset bubbles, and financial crises.
• Debt reduction without recession: Households and businesses could pay down debt without shrinking the money supply, enabling deleveraging without triggering recessions.
• Greater transparency and sustainability: The system would increase democratic control, align investment with societal needs, and support sustainable development.

How would the banking sector and central bank roles change under Andrew Jackson’s proposals in "Modernising Money"?

• Banks as true intermediaries: Banks would need to attract funds before lending, competing for Investment Account holders and managing risk more carefully.
• Safe bank failures: With Transaction Accounts protected by the central bank, banks could fail without disrupting payments or requiring bailouts.
• Central bank control: The Bank of England would directly manage the money supply, simplifying regulation and making the payments system more robust and competitive.