Some information from Canada:
“Banks create money. That is what they are there for. The manufacturing process consists of making a pen-and-ink or typewriter entry on a card in a book. That is all. Each and every time a bank makes a loan, new bank credit is created - new deposits - brand new money. Broadly speaking, all new money comes out of a bank in the form of loans. As loans are debts, then under the present system all money is debt.”
Graham Towers (1897-1975), Governor of the Bank of Canada from 1935-1955
“Money is created when banks lend it into existence. When a bank provides you with a $100,000 mortgage, it creates only the principal, which you spend and which then circulates in the economy. The bank expects you to pay back $200,000 over the next 20 years, but it doesn't create the second $100,000 - the interest. Instead, the bank sends you out into the tough world to battle against everybody else to bring back the second $100,000.”
Bernard Lietaer, economist and author, formerly of the Central Bank of Belgium
“The study of money, above all other fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it. The process by which banks create money is so simple the mind is repelled.”
John Kenneth Galbraith (1908-2006)
Canadian coinage and banknotes are fiat money that the federal government declares to be legal tender. Canadian currency is not backed by gold or silver reserves. Just over $50 billion in Bank of Canada notes is in circulation and an estimated $1.5 billion in coins has been issued into circulation by the Royal Canadian Mint since 1969.
The six main chartered banks in Canada, namely RBC, Scotiabank, TD Canada Trust, CIBC, BMO, and National Bank, had a combined total of over $970 billion in loans listed on their balance sheets for October 31, 2010, which is close to $920 billion more than the total amount of legal tender cash in circulation. Most money today exists as bank deposits.
The reserve amount in a fractional reserve banking system is supposed to set a limit on how much money the banks may create. Statutory cash reserve requirements for banks in Canada were quietly phased out by the federal government between 1991 and 1994. The Bank for International Settlements, which generally governs capital requirements at major banks around the world, decided in 2004 that banks must hold equity capital equal to only 8-10% of their total loans outstanding, meaning they are required to have about $1 million in capital to make $10 million in loans.
The federal debt in Canada is currently more than $560 billion, and interest payments on the debt in 2009-2010 cost $29.4 billion dollars or 11 cents of every tax dollar. The ratio of household debt in Canada, including mortgages and consumer debt, is now approximately 150% of disposable income after mandatory deductions and income taxes.
Bank money is interest-bearing debt and it transfers wealth to those who create and control the money. Banks create money in the form of loans and credit, and interest is the price we pay to the banks to use their money. We are indebted to those who have usurped the ability to create money. The current monetary system has serious economic, political, social and environmental consequences.
Money does not need to be created as interest-bearing debt. Our legitimate endeavours should not be restrained by the price of money or a limited supply of money. We do not have to be burdened by unnecessary debt and compound interest in the voluntary exchange of our goods and services. Anything physically possible is financially possible.
Money basically needs to function as a medium of exchange. It is essentially an instrument, device or token that can be used to make payments or settle debts in the sale and purchase of goods and services. Local currencies can serve this purpose.
A convenient and efficient exchange system does not even require the use of money. It only needs to facilitate the trade of goods and services. This is simply a matter of keeping an account of our transactions and our credit or debit balances based on the exchange of goods that we produce and services we provide for those that we obtain.
The technologies already exist to create a more effective method, connecting local and national trading networks. We can collectively and co-operatively determine the structure and details of an improved system, such as credit and debit limits and possible fees to use the services provided.
Alternatives to the present monetary and banking system are being utilized around the world, including interest-free banks, community currencies, local trading systems, reciprocal trading associations and mutual credit clearing services. Interest-free methods do not require constant economic growth, which allows for more responsible use of our land, resources, materials, energy, time, knowledge and skills to genuinely meet our needs and create real wealth.
A better understanding of the nature and function of money and credit will afford us the opportunity to begin to implement more efficient and sustainable exchange systems.
