What monetary reform for the post-growth era?

Excerpted from Jem Bendell:

“While more politicians promote new measures of progress, they remain fixated on increasing economic growth. Why this obsession? Do they simply prefer it to other measures of progress? Clearly that can’t be the reason. The answer lies in our current monetary system, which requires economic growth, as otherwise our money supply disappears and we experience recession. To understand how that is the case, we must first understand the origin of the money we use. So let us take a couple of moments to recap on our monetary system.

In most countries, about 3% of our money originates from government-owned mints that make notes and coins. The rest is digital and created by private banks, out of nothing, when they issue loans. When we go to a bank to take out a loan, the bank does not lend its own money or that of its depositors. As a deputy governor at the Bank of England put it: “Banks extend credit by simply increasing the borrowing customer’s current account … That is, banks extend credit by creating money.” As banks create the amount borrowed, but not the interest to be paid on that loan, there is now more debt in the world than money. That means there must be an increasing amount of lending to pay off debts plus interest while maintaining the amount of money in circulation, which means economic activity must continually increase. Otherwise, as debts are paid off, so our money supply shrinks, which leads to defaults, foreclosures, bankruptcies, unemployment, depression, and, history shows us, then crime and extremism.

This monetary system also means that although individually we might pay off our debts, collectively we are in debt forever, paying interest to the banks. So this money system makes increasing inequality a mathematical certainty. Is it any wonder that 2% of the world’s population controls about half the world’s wealth? This monetary system means governments do not issue the money they spend, but go into debt to private banks that “lend” money they simply create. It’s a sleight of hand that becomes a strangling hold, as people assume the government cannot afford to help their citizens by spending their own currency, due to the deficit. Yet the real deficit is in our thinking.

So why do so many people ignore thoughts about the monetary system? Perhaps for the same reasons I did for 15 years before the financial crisis: I thought this topic was beyond me, and I was confused about what it might mean for my future work. Yet to have any agency we need to think freely, which requires our love of truth to be greater than our fear of consequences. Risking one’s status, career progression, or inviting criticism, are some of the fears that work semi-consciously to restrict people’s ability to consider uncommon ideas. Yet the financial crisis has made it essential more of us find the time and courage to escape our specialisms and look deeper at the very design of our economy.

Last year campaigns for monetary reform picked up pace, such as Positive Money. Putting this issue on the political agenda is a huge task. So more people are now taking matters into their own hands, and creating their own systems for clearing credit amongst networks of peers and businesses – indeed, their own local currencies. It might sound unusual, but it is not a new idea, and there is much to learn from.

The oldest and largest such system comes from the home of financial conservatism: Switzerland. In Basel there is a nationwide bank, the Banque WIR that since 1934 has issued its own currency. Each WIR is equivalent to one Swiss franc, but cannot be exchanged for them, as it merely acts as an accounting system for the value of trade amongst its 70,000 business members. About $2bn of value a year is traded between the members in this alternative currency. Of the participants 80% are small firms that find their membership important for keeping their business going during economic downturns. That is when banks restrict new credit, especially to small businesses, and so at such times these firms increase their use of the WIR to buy inventory from other participating firms. Independent research has found that the WIR has helped the Swiss economy suffer less severe economic cycles as its neighbours.

It is not just business networks that use alternative systems to trade without official money. A recent book co-authored by an associate scholar with the Institute for Leadership and Sustainability (IFLAS), John Rogers, describes worldwide innovations in community exchange systems, such as Banco Palmas in Brazil, which is creating thousands of new jobs. There is constant innovation in relevant software, with groups such as CommunityForge offering it free and open source. Soon, the thousands of poorly unfunded and largely unmarketed initiatives will be joined by impossible.com – an initiative backed by model Lily Cole and Wikipedia founder Jimmy Wales. It seems scale is inevitable.

There is a long way to go before these interesting experiments provide viable alternatives to an unsustainable economy based on bank-issued debt. That is a reason for more experimentation and analysis on how to scale them effectively. At IFLAS we therefore run workshops throughout the year on such systems.

Is prosperity without economic growth possible? Yes, but only if we transform monetary systems. Is there a way for businesses to thrive with an alternative monetary system? Yes, as more credit would go to productive economic activity not speculation.

Whether in business, investment, philanthropy, or politics, there are few more important, less understood and less pursued objectives today than monetary reform. It is time to direct more of our time and resources to the underlying causes of our multiple crises, and swiftly learn about the pros and cons of alternative systems.”

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