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Central banks should make Green Investment decisions, ‘for the sake of all our futures’

July 3, 2017

Josh Ryan-Collins, co-founder of the Brixton Pound, is senior economist at the New Economics Foundation, visiting research fellow at Southampton Business School’s Centre for Banking, Finance and Sustainable Development and at London’s City University Political Economy Research Centre. His research focuses on financial reform, including structural banking reform and monetary policy and he is co-founder of the ‘Brixton Pound’ local currency in South London.

Edited extracts from his recent article:

Josh sets the scene – pointing out that the European Central Bank is currently creating €60bn a month in new money under its ‘Quantitative Easing’ program, which is being used to purchase a range of public and commercial assets across Eurozone member states. They have so far bought £82 billion worth of corporate bonds. The Bank of England, meanwhile, completed its £10bn corporate bond programme in May.

The criteria central banks use to choose the types of corporate bonds to purchase are ‘market-neutral’; they base their decisions on much the same criteria as any other large commercial investor, purchasing high quality, ‘investment grade’ assets. New research by the London School of Economics’ Grantham Institute released last week suggests that when it comes to carbon-intensity, corporate QE purchases are favouring high carbon sectors.

A number of central banks clearly recognise the risks to financial stability posed by climate change, as Mark Carney’s “Tragedy of the Horizon” speech (on the horizon?) and three later addresses made clear, but as yet their focus has been confined to encouraging greater ‘disclosure’ by financial market participants.

Mark Carney, dubbed an unlikely champion

Ryan-Collins insists, “Central banks must go further. Institutional investors are already accounting for environmental and social governance criteria in making their investment decisions. With the world rocked by Trump’s decisions, it is more urgent than ever for us to call upon central banks to do the same and take a step towards mainstreaming ‘green’ finance – for the sake of all of our futures.

 

 

 

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Hines: using quantitative easing and housing bonds constructively

June 14, 2017

Thomas Attwood would surely have agreed with the prescription offered by Colin Hines, a former co-ordinator of Greenpeace International’s Economics Unit, of providing hope, not just for the young, but for every community in the country.

His letter in the Guardian continues: ”To do this Jeremy Corbyn must revisit and vigorously shake his people’s QE “money tree”. This could pay for real economic activity on the ground via decentralised infrastructure projects to make the nation’s 30 million buildings energy efficient, ensure a shift to localised renewable energy and the building of local transport systems.

Secondly, the divide between young and old must be bridged by policies fostering intergenerational solidarity. Older people with significant savings should be offered “housing bonds”, paying, say, 3% interest to help fund a massive council and affordable homes programme.

Tuition fees would be scrapped, but so too must be the threat of having to lose a home to pay for care, or having to scrabble for means-tested benefits such as heating allowances.

Financed by progressive and fairer wealth and income taxes, and a clampdown on tax dodging, this should have an election-winning appeal to the majority of grandparents, parents and their young relatives.

 

 

 

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If China can fund infrastructure with its own credit, so can others

May 22, 2017

Today we received an article from and by Ellen Brown published in TalkMarkets, described in Business Wire (January 2015) as a financial-information website. In six months it reached ‘critical mass’ – its one millionth pageview – in early December 2014.  Extracts from Ellen’s four page article:

While American politicians debate endlessly over how to finance the needed infrastructure fixes and which ones to implement, the Chinese have managed to fund massive infrastructure projects all across their country, including 12,000 miles of high-speed rail built just in the last decade.

How have they done it, and why can’t we?

The Chinese government owns the majority of its banks. About 40% of the funding for its giant railway project comes from bonds issued by the Ministry of Railway, 10-20% comes from provincial and local governments, and the remaining 40-50% is provided by loans from federally-owned banks and financial institutions. Like private banks, state-owned banks simply create money as credit on their books. The difference is that they return their profits to the government, making the loans interest-free; and the loans can be rolled over indefinitely. In effect, the Chinese government decides what work it wants done, draws on its own national credit card, pays Chinese workers to do it, and repays the loans with the proceeds.

The US government (and others) could do that too, without raising taxes, slashing services, cutting pensions, or privatizing industries.

Countering the dogma that “private companies can always do it better and cheaper,” studies have found that on average, private contractors charge more than twice as much as the government would have paid federal workers for the same job. A 2011 report by the Brookings Institution found that “in practice [PPPs] have been dogged by contract design problems, waste, and unrealistic expectations.” In their 2015 report “Why Public-Private Partnerships Don’t Work,” Public Services International stated that “[E]xperience over the last 15 years shows that PPPs are an expensive and inefficient way of financing infrastructure and divert government spending away from other public services. They conceal public borrowing, while providing long-term state guarantees for profits to private companies.” They also divert public money away from the neediest infrastructure projects, which may not deliver sizable returns, in favor of those big-ticket items that will deliver hefty profits to investors.

Today’s infrastructure banks are basically revolving funds. A dollar invested is a dollar lent, which must return to the bank (with interest) before it can be lent again. A chartered depository bank, on the other hand, can turn a one-dollar investment into ten dollars in loans. It can do this because depository banks actually create deposits when they make loans. This was acknowledged by economists both at the Bank of England (in a March 2014 paper entitled “Money Creation in the Modern Economy”) and at the Bundesbank (the German central bank) in an April 2017 report.

Contrary to conventional wisdom, money is not fixed and scarce. It is “elastic”: it is created when loans are made and extinguished when they are paid off. The Bank of England report said that private banks create nearly 97 percent of the money supply today. Borrowing from banks (rather than the bond market) expands the circulating money supply. This is something the Federal Reserve tried but failed to do with its quantitative easing (QE) policies: stimulate the economy by expanding the bank lending that expands the money supply.

The stellar (and only) model of a publicly-owned depository bank in the United States is the Bank of North Dakota (BND).

It holds all of its home state’s revenues as deposits by law, acting as a sort of “mini-Fed” for North Dakota. According to reports, the BND is more profitable even than Goldman Sachs, has a better credit rating than J.P. Morgan Chase, and has seen solid profit growth for almost 15 years. The BND continued to report record profits after two years of oil bust in the state, suggesting that it is highly profitable on its own merits because of its business model. The BND does not pay bonuses, fees, or commissions; has no high paid executives; does not speculate on risky derivatives; does not have multiple branches; does not need to advertise; and does not have private shareholders seeking short-term profits. The profits return to the bank, which distributes them as dividends to the state.

The federal government could set up a bank on a similar model. It has massive revenues, which it could leverage into credit for its own purposes. Since financing is typically about 50 percent of the cost of infrastructure, the government could cut infrastructure costs in half by borrowing from its own bank. Public-private partnerships are a good deal for investors but a bad deal for the public. The federal government can generate its own credit without private financial middlemen.

 

Ellen Brown ends: “That is how China does it, and we can too”.

(Four years ago, Dr Ian Jenkins (Plaid Cymru) was proposing a Public Bank for Wales. There have also been calls for a public bank in Scotland, spurred on in part by anger at the damage done to the image of the nation by the actions of private banks such as RBS and HBOS. There have been articles in the Scotsman as well as lectures at the Royal Society of Arts in Edinburgh by public banking experts such as Ellen Brown of the American Public Banking Institute).

 

 

 

 

Birmingham’s Jewellery Quarter remembers Thomas Attwood

May 5, 2017

The Jewellery Quarter Walk, devised by Bob Miles, shows where, in the unsettled 1830s, under the leadership of Thomas Attwood, a series of vast public meetings held on Newhall Hill (below). were part of a campaign in which Birmingham played the leading role in achieving the Parliamentary reform which, Miles writes, almost certainly saved the country from revolution.

Thomas Attwood was called ‘the very first economist of the age’; he was arguing for twentieth century economic policies, such as the abolition of the gold standard and the expansion of the money supply to counter recessions, while the nineteenth century was still young. He was appointed high bailiff of Birmingham and as such he represented the town in opposing the East India Company’s monopoly of trade with the far east. This was an example of a powerful London interest which was content to damage business in the provinces in pursuit of gain.

As leader of a delegation from Birmingham which gave evidence to a House of Commons committee, Attwood proved an impressive witness and was prominent in persuading the government to change tack.

To the relief of Birmingham’s manufacturers the Orders in Council were revoked in 1812 and the East India Company’s monopoly was restricted. Attwood became an overnight hero in Birmingham.

The country was then in the throes of recession and he argued, as Keynes was still needing to argue over a century later, that Britain should have a paper currency not linked in value to gold. He further argued that the government should boost the economy in times of recession by increasing the money supply, a policy that US President Roosevelt most successfully applied, again over a century later, as part of his New Deal. Attwood’s argument was that the supply of money should be based, not on the quantity of gold held at the Bank of England, but on the productive capacity of the economy. In other words, the money supply should be so regulated as to be just sufficient to maintain full employment. In 1816 he campaigned for the Bank of England to increase the money supply by issuing more notes. There was a revival of trade, which William Cobbett attributed to Attwood’s influence.

In November 1825, a time of fevered speculation, Attwood wrote to the Prime Minister, Lord Liverpool, advocating the urgent preparation of a supply of £1 notes. On 16th December, the panic which Attwood had foreseen set in. Banks failed in all directions and there was a run on the Bank of England. It was only by the issue of the notes that had been produced with the benefit of Thomas Attwood’s foresight that the Bank of England itself was saved from collapse.

He led the Birmingham Political Union’s (BPU’s) campaign for Parliamentary reform which led to the Reform Act of 1832 and began the process of modernising British democracy.

William Dargue’s account of the local meetings is more detailed:

“Newhall Hill is most famous as the site of very large public meetings called by the Birmingham Political Union to campaign for parliament to pass a Reform Act which would draw more people into the democratic process.

“The current system of parliamentary democracy was rooted in a semi-feudal society, in time when the majority of people lived in the countryside and few people were literate. “By the 1800s literacy had spread considerably and almost half the population lived in towns and cities which had no parliamentary representation. The political unions demanded household suffrage and secret ballots, salaries for MPs, the abolition of the property qualification for MPs and triennial elections. The most famous meeting was that of 7th May 1832 which was attended by 200 000 people”.

The Reform Act was passed on 4th June 1832. Attwood returned to Birmingham from London a hero. Massive crowds turned out to welcome him; medals and mugs with ‘King Tom’s’ head on sold like the proverbial hot cakes.

In the general election held in the autumn of that year, he and Joshua Scholefield, another leader of the BPU, were returned unopposed – Birmingham’s first MPs.

Miles asks about the memorial; the city council put the relocated Sparkbrook statue into storage and Alderman Matt Redmond long pressed for the statue to be restored and restored to public  view, but it was said that the considerable funding needed for this was not available.

We hope that the more recent bronze statue, commissioned and donated to the city by his great, great, granddaughter and seen on this website’s header, will be replaced prominently in the redesigned Chamberlain Square as promised.

 

 

 

 

Bitcoin rising: are any readers using this virtual currency?

April 1, 2017

An earlier post informed us that Scotland’s David Low had decided to buy control of Scotcoin, which uses the same public database ‘blockchain’ technology as bitcoin. The USA has classified virtual currency as an asset for tax purposes and Israel has issued a draft which considers Bitcoin an asset, imposing VAT and capital gains tax on bitcoin transactions.

Now Japan has officially recognized bitcoin. New legislation that legitimizes digital currencies came into effect today (Saturday 1st April). The country’s financial regulator says bitcoin is fulfilling the function of a currency. More information on how it works is given here and about its  advantages and disadvantages here.

The first bill containing provisions for virtual currencies including Bitcoin, submitted to the Diet last March, amends the existing Payment Services Act and the Act on Preventing of Transfer of Criminal Proceeds. It defines virtual currencies including bitcoin and imposes certain regulations on virtual currency exchange services in order to prevent money laundering and terrorist financing as well as to protect users.

Ken Kawai of Anderson Mori & Tomotsune, a leading Japanese law firm confirmed that though Bitcoin is not considered a currency, being recognized by the government as a payment method will “likely have a positive effect on people’s mind and facilitate usage of VC’s [virtual currencies]”.

Japanese exchange Coincheck has revealed that its user base has risen from 14,000 users last April to 76,400 in January and there was rapid growth in the number of bitcoin-accepting merchants using its service.  Japanese giant GMO Internet group has recently announced that it would be developing a bitcoin exchange and wallet service. Japan now has the second-largest bitcoin trading volume globally, according to Coinhills.

 

 

 

 

Central Bank Digital Currency and Sovereign Money Accounts

March 14, 2017

In a recent message, Professor Huber directs readers to two sections of his website  where ‘various path-breaking contributions’ to the current discussion about central bank issued digital cash, include:

Monetary Workarounds. Central bank digital currency and sovereign money accounts. Intermediate approaches to sovereign money reform See: www.sovereignmoney.eu/monetary-workarounds-digital-currency-and-sovereign-money-accounts.

An extract

Since about 2013/14 scholars have been looking for an intermediate or gradual approach to monetary reform. If a ‘big bang’ transition from private bankmoney to sovereign central-bank money could not be achieved anytime soon, something less radical might be attainable. The two approaches being in the spotlight are

► central bank issued digital currency (CBDC) based on blockchain technology, and

► sovereign money accounts as an alternative option to bank giro accounts.

Further ideas relate to:

  • central bank accounts for everybody
  • mobile use of sovereign money accounts
  • helicopter money
  • safe deposits by way of a voluntary 100% reserve on individual deposits.

The common feature of the former options is to introduce non-cash central-bank money into public circulation, but without directly challenging the present bankmoney privilege. The idea is about giving the nonbank public the option to choose between bankmoney and central-bank money. The two would exist in parallel. By some supporters such an approach is idealised as ‘combining the best of two worlds’, while others, more appropriately, hope for the approach to be a half-way house to full-blown monetary reform that would put an end to the bankmoney privilege. Over time, the central-bank money in public circulation would possibly drive out the bankmoney, thus reverting the historical wrong-headed development of the last hundred years by which bankmoney has driven out sovereign money to about 90% now.

This attractive picture of the Hermann Safe can be seen on the website, though its significance is not apparent to the writer.

One of the safe doors at the San Francisco Mint. Almonroth: This file is licensed under the Creative Commons Attribution-Share Alike 3.0 Unported license.

 

Continue reading  >  Monetary Workarounds. Central bank digital currency and sovereign money accounts or print out as  >  PDF  

 

 

 

Scotcoin, Bitcoin, ScotPound, a Scottish central bank?

March 6, 2017

Mure Dickie in the FT, writing from Glasgow, explains that currency policy became a central issue in Scotland’s 2014 independence referendum.

David Low, chairman of Lowdit Partners, a Glasgow entrepreneur, accountant and financial adviser, is withering about the financial system:

Why would anyone trust the banking system? The banking system is corrupt, the banking system hasn’t changed in 300 years, it’s still run by the elite. Every link in the banking chain from the central bank down, someone is taking a cut, someone is taking a margin, everyone is taking a clip.

The western economy is bankrupt, financed by the electronic printing of money, which Carney is using to buy debt off the people, the banks, the people who created the problem in the first place. It doesn’t filter down. It just circulates among the elite, it doesn’t filter down to the people who didn’t cause the problem, the people who are bearing the brunt of austerity. They are paying the price of the people who actually caused the problem.

And the people who caused the problem are solving the problem not with their own money but money given to them in newly-created electronic money by the Bank of England.

Mr Low decided to buy control of Scotcoin, which uses the public database ‘blockchain’  technology like the pioneer bitcoin, because he believes that as the use of digital money grows it will come under a regulator and those in the blockchain will have to register and be identified. Like other cryptocurrencies, it is based on a shared encrypted record of transactions, promising greater security and lower costs than traditional banking and settlement systems.

He dismisses the SNP plans to continue to use the pound and Bank of England after leaving the UK: “An independent Scotland, if it wants to have half a chance, must have its own currency,” he says. The FT article records various inducements to encourage people to take up the Scotcoin currency.

A 2015 report for the New Economics Foundation and Scotland’s Common Weal thinktank argued that adoption of a parallel digital currency exploring the creation of ScotPound, a new digital currency would help Scotland to address inequality and increase spending power.

The Scottish Monetary Reform group says leaving the UK would be an opportunity to set up a new Scottish central bank would have direct control of supplying new money, fixing interest and exchange rates, capping the national debt and reducing the influence of financial speculation.

After  the 2008 global crisis had shaken confidence in the status quo, Scotland’s independence referendum further stimulated thoughts about adopting different monetary systems.

Sources

https://www.ft.com/content/a362efc6-c937-11e6-8f29-9445cac8966f

http://scotcoinproject.com/

https://www.uk.capgemini-consulting.com/blog/retail-banking/2016/04/blockchain-the-answer-to-secure-data-in-a-cloud-based-world

http://allofusfirst.org/

http://www.heraldscotland.com/news/14695529.Meet_the_man_behind_Scotcoin___the_digital_currency_promising_not_just_loose_change_but_a_political_revolution/?ref=rss

http://wiki.p2pfoundation.net/Scotcoin

https://www.commonspace.scot/articles/2388/common-weal-and-nef-join-forces-to-create-digital-currency-plan-for-scotland