To design a money system that serves the ends and values of the New Economy, it is necessary to understand the crucial design choices that determine to whom money flows, for what purposes, and on what terms. These choices in turn determine the values and purposes the money system serves.
Market fundamentalists will argue that such decisions should be left to the market. This argument is disingenuous, because how the market allocates will be determined by design choices that are inherently political. Leaving these political choices to the market means they will be made by the market's most powerful players to further augment their power. This process led to the deregulation and mergers that set the stage for the financial crash of 2008.
The following are some of the important design options. Each individual choice is fairly simple. In combination, however, the possibilities and their implications become mind numbingly complex.
Should official money originate as bank debt or direct government issue?
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Money can be created when a loan is issued by a bank at interest. In this instance the banker determines who will receive the money, for what purpose, and on what terms, except to the extent constrained by government regulation, including reserve and capital requirements. The bank may be owned privately, cooperatively, or by a governmental entity. Alternatively a sovereign government can spend money into existence directly interest-free to fund directly whatever priorities it may choose. Unofficial complementary or alternative currencies can also be issued directly by either private or governmental entities. The various options are not necessarily mutually exclusive.
Should the power to originate money be centralized or decentralized?
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There is a range of possibility. At one extreme, the power to create money can be centralized and monopolized by a few national or global mega-banks or by a federal or global governmental agency. At the other extreme, it can be localized and distributed among many independent community banks and other community rooted financial institutions with varied mandates and a variety of public, private, cooperative, for-profit, or non-profit ownership structures. There is a near infinite variety of possibilities in between these extremes.
Should a nation have one currency or many?
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Again there is a range of possibility. There are advocates of a single global currency. Some complementary currency advocates recommend encouraging the use of many different currencies freely issued by any group or individual who cares to do so. In most countries there is one accepted official currency. In a few countries the official currencies of certain other countries are widely accepted.
Should financial institutions be operated for public or for private benefit?
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The institutions that individually and collectively create and allocate the money supply can take many different forms ranging from pure for-profit private-benefit corporations to non-profit public-benefit organizations of either a private or governmental nature. There is nothing that says they must be all one or the other. The particular mix will significantly influence the extent to which the money system gives priority to the creation of concentrated private wealth or distributed public wealth.
Should the money system be regulated or left to market forces?
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The shape and function of the money system will depend in large measure on whether it is subject to appropriate public regulation to limit the size of individual institutions, place a ceiling on interest rates, prevent fraud and deception, and support locally rooted, preferably cooperative, ownership in the social enterprise model. The results of a reckless social engineering experiment with financial system deregulation provide an unambiguous demonstration of the consequences of that path.
The more the power to create money is centralized and concentrated, the lower the level of public accountability and the greater the potential for abuse. This dynamic is all the stronger when money creation powers are monopolized by private banks accountable only to private shareholders and operated for pure private-benefit. The more decentralized, distributed, and transparent the power to create and allocate money, the more democratic and equitable the society. It is virtually impossible to have either a functioning democracy or an equitable distribution of wealth when money creation powers are centralized and monopolized by nontransparent, private, for-profit institutions managed for purely private gain, as is currently the case for the U.S. money system. [See Debt Money vs. Government Issue Trade Offs]
Democratic accountability can be increased and monopoly control can be avoided by decentralizing the banking system and diversifying ownership among for-profit, non-profit, cooperative, and government banks as outlined in An Action Agenda.
The complexity of the options defies categorical solutions. An open national debate in search of reforms that move toward greater transparency, accountability, diversification, and local control in the public interest is long overdue.