The proposal of Commissioner Laszlo Kovacs (10-03-06)

“In my view, the most viable path would be to link an EU tax to energy consumption because the tax revenues could also serve a secondary purpose of influencing energy policy so as to support renewable energy resources by lower (tax) rates,”

OUR PROPOSAL (authors James Robertson and Prof. Dr. Joseph Huber)
MONETARY REFORM FOR THE INFORMATION AGE

This proposal will end the so called “Fractional reserve banking” system.
Allowing private banks to create new money out of nothing deprives the government off a special profit.
This special profit is called “seignorage” and, in our view, belongs to the people.
However, it is important to stress that, although banks will lose the possibility to create sight deposits out of nothing in current accounts, the normal profitability of banking business will remain untouched. Banks will be able without any restrictions to continue to carry out every kind of business they do now, e.g. managing deposits and transfers of their clients, granting loans to whomsoever they consider creditworthy, investing in financial assets such as bonds or equity shares for their clients and for themselves, and offering a wide variety of financial products and services.

Background of the proposal for seigniorage reform:
1. Chronic finance problems of public agencies.
2. Commercial creation of money out of control.
3. Monetary and financial instabilities of various kinds.

Method of Issuing New Money

1. Central banks should create the amount of new non-cash money (as well as cash) they decide is needed to increase the money supply, by crediting it to their governments as public revenue. Governments should then put it into circulation by spending it.

2. It should become infeasible and be made illegal for anyone else to create new money denominated in an official currency. Commercial banks will thus be excluded from creating new credit as they do now, and be limited to credit-broking as financial intermediaries.

It will be for central banks to decide at regular intervals how much new money to issue. They will make their decisions in accordance with monetary policy objectives that have previously been laid down and published, and they will be accountable for their performance.
But they will have a high degree of independence from government, giving governments no power to intervene in decisions about how much new money to create.
The money system should be organized as a fourth branch of government on a par with the executive, judicial and legislative branches.

Four comparatively straightforward changes will be needed, as follows.

1. Sight deposits denominated in the official currency will be recognised as legal tender, along with cash.

2. The total amount of non-cash money existing in all current accounts (including those of bank customers, banks, and government), together with the total amount of cash in everyone’s possession, will be recognised as constituting the total stock of official money or legal tender immediately available for spending.

3. Customers’ current accounts will be taken off the banks’ balance sheets, and the banks’ will manage them separately from their own money (which is not what they do today). As a result, a clear distinction will be introduced between means-of-payment money (“plain money”) in current accounts, and store-of-value money (“capital”) in savings accounts. In practice this will mean that, except when a central bank is creating new money as public revenue, payments into current accounts will always have to be matched by payments out of other current accounts, or paid in as cash.

4. Finally, if any person or organisation other than a central bank fails to observe that distinction and prints new non-cash legal tender into a current account, they will be guilty of counterfeiting or forgery – just as they would be if they manufactured unauthorised banknotes or coins.

THE EU BUDGET
The EU budget was €83bn in 1998 and €86bn in 1999, including the opt-out countries.
The increase in the stock of money within the Euro area, not including the opt-out countries, was about €185–190bn in 1999 (ECB Monthly Bulletins, Table 2.4).
So the EU budget could be more than fully financed by EU seigniorage.
On the basis of those figures, national governments of the Eurozone states would be able to stop paying contributions to the EU budget altogether, and – on top of that – actually receive from Brussels more than the amounts they were previously having to pay.

The legislative proposal:

Declaring Sight Deposits as Legal Tender:
Enacting the public prerogative of creating official money will require a simple but fundamental change in the law.
It is most clearly illustrated by the change needed in the Statute of the European System of Central Banks and the European Central Bank.
Article 16 of the European Statute is titled “Banknotes”. It reads as follows:
“…The Governing Council shall have the exclusive right to authorise the issue of banknotes within the Community. The ECB and the national central banks may issue such notes. The banknotes issued by the ECB and the national central banks shall be the only such notes to have the status of legal tender within the Community.”

The changed version could be titled “Legal Tender”.
It will be on the following lines:
“…The Governing Council shall have the exclusive right to authorise the issue of legal tender within the Community. Legal tender includes coin, banknotes, and sight deposits. The ECB and the national central banks may issue such means of payment. Coin, banknotes, and sight deposits issued by the ECB and the national central banks shall be the only means of payment to have the status of legal tender within the Community.”

For more information visit our website at http://www.socialcurrency.be

Or the authors

http://www.soziologie.uni-halle.de/huber/ (Japanese edition: Atarashii kaheino sozo, Tokyo: Nhonkeizaihyoron-sha.)

http://www.jamesrobertson.com/

Kind regards,

Paul Nollen