Frosti Sigurjonsson’s Sovereign Money proposal: Iceland’s central bank would become the only creator of money
The writer thanks Paul Gosling who tweeted the link to a Telegraph article which reports that Iceland’s government is considering a proposal to remove the power of commercial banks to create money and hand it to the central bank. The proposal – “A better monetary system for Iceland”- was part of a report commissioned by Prime Minister Sigmundur David Gunnlaugsson. It was written by a lawmaker from the ruling Progress Party, Frosti Sigurjonsson, ‘businessman and economist’.
In Iceland, as in other market economies, the central bank controls the creation of banknotes and coins but not the creation of all money, which occurs as soon as a commercial bank offers a line of credit. The central bank can only try to influence the money supply with its monetary policy tools.
Finding that each of the country’s past financial crises arose from ‘ballooning credit during a strong economic cycle’, he argues that ‘the central bank was unable to contain the credit boom, allowing inflation to rise and sparking exaggerated risk-taking and speculation, the threat of bank collapse and costly state interventions’.
“Crucially, the power to create money is kept separate from the power to decide how that new money is used. As with the state budget, the parliament will debate the government’s proposal for allocation of new money”. Banks would continue to manage accounts and payments, and would serve as intermediaries between savers and lenders.
We shall watch the deliberations of the Icelandic Parliament with great interest.
Some of the comments
This is a very similar situation as to when the Bradbury Pound was introduced as an emergency measure in 1914. In fact it worked so well, the upper echelon of the banking sector panicked and fought (successfully) tooth and nail to muscle their way back in to re-gain control of the money supply.
Private commercial banks can too readily create money out of thin air and thus encourage booms (during upturns) and busts (during downturns) by inflating and deflating the money supply for their own financial interests rather than those of the economy at large. This must stop. Iceland has realised this and should be encouraged to find a solution that other nations can follow.
My guess is that Greece will inevitably follow suit, closely followed by Spain and Italy.
It will be very interesting to see what reaction the USA has on this move, as to date their record of respecting nations who create their own money supply is to say the least aggressive, aka Libya when Gadaffi was in the process of negotiating with other African nations an all African currency.
President Lincoln did actually do this as an emergency measure during the civil war (creating the Greenback). He then tried to continue it after the war, and look what happened to him…
USA will react: they won’t dare bomb Iceland, but as sure as hell they will find a way to cripple the country in order to get it back into the cartel of self serving parasites that we all ultimately work for.
This sounds like an entirely sensible idea! I wish Britain would do it.