Category Archives: Eco monetary reform

The experiment with a flawed money system is coming to a sticky end and the priesthood is scrambling to maintain or confidence in marketing and banking after derivatives, quantitative easing and banks to big to fail being bailed out. How do we get a monetary system and banking system which works for Main Street, brings jobs, and gives us back our sanity?

Regulating the Banks

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During the 1980s and after the banks were successively deregulated. According to David Korten who saw the same thing happening in the US: “This deregulation shifted the focus of the money/banking/finance system from investment in real wealth creation to a focus on using money to make money through unproductive speculation, arbitrage, usury, deception and market manipulation.”  Financial institutions which were not subject to banking rules, such as hedge funds and private equity funds started to make huge returns.

Roger Douglas deregulated our banks as one of the first acts of the Lange Douglas Labour Government in 1984. The system’s priorities shifted from funding productive investment to financing speculation.

According to a 1996 speech by the Governor of the Reserve Bank: “All controls on  credit, foreign exchange and out-bound overseas investment were lifted in 1984, and the New Zealand dollar was floated early in 1985. Banks were freed from any quantitative limits on their lending growth. The requirement for banks to hold deposits with the central bank, or to hold specified investments in government securities, was abolished. Banking, previously the exclusive preserve of one government-owned institution and three foreign-owned banks, was opened up to full competition. The licensing of those authorised to deal in foreign exchange was discontinued. Competition between currencies was given some scope in that contracts could be denominated in any currency (though taxes must still be paid in New Zealand dollars, and the Customs Act prohibits the importation of other currencies intended for circulation).

In January 1996, the banking system was further liberalised when the Reserve Bank commenced a rather different way of conducting prudential supervision. Instead of reporting on a confidential basis to the central bank, banks were required to issue detailed quarterly public disclosure statements, which must be audited twice-yearly by external auditors. Instead of limiting their exposure to individual counter-parties to some central-bank-specified percentage of capital, banks must simply disclose how much risk concentration they have in their portfolio at end of quarter, and at peak intra-quarter. Instead of complying with detailed guidelines on internal controls, directors must simply attest, in the quarterly disclosure statements, that the internal controls are appropriate to the nature of the banking business being undertaken.”

Interest-rate and other controls have been removed and regulatory and legislative distinctions between different institutional groups have been reduced.

Deregulation contributed to rapid growth in money market activity, the development of a sizeable secondary market in government securities, the introduction of a wider range of financial instruments, including forward contracts, options and interest and exchange-rate futures, and the growing use of such devices to hedge interest-rate and exchange-rate risk.

And what certainly added very considerable risk to the financial system was the widespread practice of securitising residential and other loans. What was seen by some observers as a powerful innovation enabling credit risk to be diffused across a multitude of financial institutions turned out to be the source of enormous danger. Loan originators had little incentive to ensure borrowers were creditworthy because they had no intention of holding onto the risk. They passed that risk on “down the chain”, with successive financial institutions clipping the ticket as the risk was passed from hand to hand but holding no exposure to the potential default. There was no transparency or accountability in the credit chain, and significant parts of the process were largely unregulated.

So banks are now involved in managed funds, insurance of all types and brokerage functions.

With the global financial crisis it is clear that this whole process must be reversed.We must:

  • Prohibit trading in securities with borrowed money
  • Prohibit financial institutions from trading for their own accounts in securities they sell to the public.

Business encouragement and investment

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Business encouragement

With a transformation of the tax system and banking system entrepreneurialism would flourish

The New Economics Party believes that we must be an enterprising nation and that pragmatic and creative business thinking must be encouraged at every level of our society. Our policies are the most business friendly possible. Little will stand in the way of entrepreneurship for those who create a labour intensive business with fair employment policies, good environmental practices and a low carbon footprint. Clean tech innovation can finally occur at full speed.

Cooperatives will be encouraged, both workers and consumers cooperatives. The NZ Cooperatives Association would be funded adequately for the purpose.

Farming would  thrive

Farming and other export businesses will thrive because the NZ dollar will drop when the interest rates drop.

EECA’s (Energy Efficiency and Conservation Authority) funding will be dramatically increased to assist all businesses to be future proofed against energy shocks.

Because we will be decentralising banks, it will be possible for them to invest in local businesses, just as the Bank of North Dakota has been able to over many years. Nurturing and mentoring of small and medium sized businesses will be encouraged. Thus local investors will be able with confidence to invest in local enterprises just as in the 1940s and 1950s when Christchurch people invested in firms like Lane Walker Rudkin.

Savings, Loans and Insurance entities

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Savings, loans and insurance

Old style Savings Banks work very well

With the disappearance of the privilege of seignorage as a source of income, there will be diversion to investment in green business. The reinvention for the 21st century of safe regional savings and loans banks, savings pools, building societies, mutual insurance societies would be encouraged so that people could borrow money from others at a local level. Without the privilege of being able to create the nation’s money supply at a profit,  banks would then have 100% reserve, thus reverting to Savings and Loans Banks which lend out depositors’ money.

David Korten in his New Economy Working Group Report, How to Liberate American from Wall Street Rule, has  suggested that the system of community banks, mutual savings and loans and credit unions is one with proven capacity to perform the desired functions. It worked throughout the 1940s to the 1960s. It was well regulated and decentralised banking system and provides a model to restore financial and economic integrity.

 

An Interest-free International currency needed for international trade

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International currency for international trade.
After prolonged and bitter debate, the international agreement at Bretton Woods in 1944 was to use the USA dollar backed by gold as the international currency, but this has given an unfair advantage to USA ever since. If people in a mutual credit scheme like a LETS scheme or a trade Barter Company can trade with each other without interest being paid, so can nations.

We would argue for an international currency with a clearing facility so we would promote an International Clearing Union with export credit accounts for trading among member nations.

In the banking crises of 1998 the Malaysian president brought in a policy to stop their currency from being used outside their country. If it came to Malaysia from the outside it was deemed worthless. This was a recognition of the principle of managed borders. Its economy as a result did not collapse to the extent that Indonesia’s and Thailand’s did and the IMF ended up noticing this.

The most powerful international currency we could use would be one invented by economist Richard Douthwaite of Ireland.

Trade dollars acceptable for paying tax

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Currencies of Barter Companies
Barter companies offer great advantages to small and medium sized businesses. Active membership of a barter company can increase the customer base of a business, sell excess stock and bring new trade.But governments have failed to recognise the alternative currencies of the trade dollars.

The currencies of barter companies currencies would be acceptable in the payment of tax at national level. These are generally referred to as Trade Dollars. The Inland Revenue Department has too long been inflexible in this regard. If they accepted the currency they could easily spend it with one of the members of the barter company. In New Zealand Bartercard has 75,000 members worldwide who could provide goods or services to government. It is time Government supported barter companies.

 

This section needs work done on it.

Community Currencies encouraged

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Community currencies.
Many trades do not require precious national currency or even a regional currency like an Auckland currency. At the community level a variety of currencies are possible and the X Party would encourage diversity. The recent spread of timebanks, where members in a community help each other and pay in Hours, is encouraging because it helps with building social capital and strengthens that community. Everyone’s Hours are equal. Organisations can join and teaching and learning can occur. The establishment of timebanks in every community would be encouraged so that people can exchange skills on an equal basis. Timebank coordinators would be funded. In this way community building can be fostered at local level for minimal cost.

Local Economic Trading Systems like the ones in Golden Bay and Wairarapa will be encouraged.

Local communities can establish local vouchers for the exchange of goods in their district. Local businesses would accept local vouchers backed by a certain quantity of goods produced in the area. One model for success is the Chiemgauer in Germany.

Green Monetary Reform

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GREEN MONETARY REFORM
Nearly every relationship essential to life depends on money. This gives ultimate power to those who control the creation and allocation of money. Most of our money is issued by private banks that manage it for the exclusive benefit of their top managers and largest shareholders. It is issued as debt to be repaid with interest. Not all borrowers can repay their loans with interest at the same time because there is not enough money in the system. So this requires at least one borrower to raise a new loan and so the total money supply must keep on increasing. This system leads to growing debt, a growing money supply and therefore the imperative for perpetual economic growth. This imposes an ever-increasing demand on the natural resources required for productivity growth – not to mention the social harm that results from a system of ‘winners and losers’. It widens the gap between the rich who are net lenders and the poor who are net borrowers.

Few people in the New Zealand realise that they are using privately created money without knowing it – and using a private service always comes with a price tag.

Any properly functioning economic system has as its purpose the provision of goods and services for a community. It is putting the cart before the horse if money supply is allowed to govern production. The financial needs of production and distribution should determine the money supply. It is only when there is enough money (whether national, regional or local) in the system that there can be full employment. If we don’t have full employment there is no hope for our youth and a complete breakdown of systems may be just around the corner. Full employment is not possible with a centralised money system linked to a global system dominated and tightly controlled by big banks, investment banks and wealth management companies.

A central service of governments — supplying money — has been privatised and it has been done by stealth in the western world.

The private interest-bearing money must be abolished and replaced by public money put into circulation by public bodies at all levels.  We would vest this money creation power throughout the community at different levels of organisation. There would be continuing negotiation between the levels to create a dynamic equilibrium.