IMF research paper backs away from private creation of money supply

privately controlled money creation has much more problematic consequences than government money creation

The following is not trivial as it may signal the beginning of a shift in the heart of the key institutions supporting the neoliberal model.

As reported by Positive Money:

We’ve been in a state of mild shock since Saturday, after discovering strong support for full reserve banking from a working paper by economists at the International Monetary Fund (IMF), an institution that many have come to see as preserving the status quo and protecting the banking sector against the interests of ordinary people.
The discussion paper “The Chicago Plan Revisited” supports the proposals of Irving Fisher … .

The History of Monetary Thought in Section II is very interesting and certainly worth reading is the analysis of Government versus Private Control over Money Issuance (p 12).

– On the other hand, the historically and anthropologically correct state/institutional story for the origins of money is one of the arguments supporting the government issuance and control of money under the rule of law. In practice this has mainly taken the form of interest-free issuance of notes or coins, although it could equally take the form of electronic deposits.

The historical debate concerning the nature and control of money is the subject of Zarlenga (2002), a masterful work that traces this debate back to ancient Mesopotamia, Greece and Rome. Like Graeber (2011), he shows that private issuance of money has repeatedly led to major societal problems throughout recorded history, due to usury associated with private debts. Zarlenga does not adopt the common but simplistic de?nition of usury as the charging of “excessive interest”, but rather as “taking something for nothing” through the calculated misuse of a nation’s money system for private gain.

To summarize, the Great Depression was just the latest historical episode to suggest that privately controlled money creation has much more problematic consequences than government money creation. Many leading economists of the time were aware of this historical fact. They also clearly understood the speci?c problems of bank-based money creation, including the fact that high and potentially destabilizing debt levels become necessary just to create a su?cient money supply, and the fact that banks and their ?ckle optimism about business conditions e?ectively control broad monetary aggregates. The formulation of the Chicago Plan was the logical consequence of these insights.”

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