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“Money creation and society” to be ‘addressed head on’ in the House

November 17, 2014

fran boaitBen Dyson’s colleague, Fran Boait, Executive Director of Positive Money, challenges the assertion of Simon Ward (Letters, November 13) that Adair Turner’s proposal to fund government spending with newly created money “would involve the creation of more Bank of England reserves, which represent a liability of the state and bear interest”.

She explains that the ‘new liability’ would not have to bear interest, since it could be issued as zero-coupon irredeemable bonds. Unlike government debt, these bonds would not create any financial obligations on the part of the government. For further reading she recommends: Sovereign money: Paving the way for a sustainable recovery, Andrew Jackson, 2013.

The traditional financial establishment reaction is still being made by Daniel J Aronoff (Letters, November 13) who cited the danger of a resurgence in the money multiplier. Fran reminds readers that the Bank of England March 2014 Quarterly Bulletin debunked the money multiplier model as a way of understanding the determination of the money supply.

She points out that Mr Aronoff’s argument that debt monetisation risks hyperinflation was examined and found wanting by the Cato Institute study of all 56 recorded cases of hyperinflation (Hanke & Krus, 2009). This found that hyperinflation only occurs under extreme conditions such as war or a complete collapse in the productive capacity of a country (as in Zimbabwe). Boait adds: “They are not a result of politicians turning on the printing presses just before an election”.

Like many, she has commended Adair Turner’s proposal, which would produce economic growth without getting the household sector even further into debt. She also highlights the backbench Commons debate into the topic of “money creation and society” on Thursday – saying that this is the first time that these issues have been addressed head on in the House in 170 years.


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