12 Apr '11, 3pm
Banks create new money electronically through loans. Until the ICB realises this, financial reform will go nowhere.
It's unclear on what basis the ICB has come to this conclusion. Full reserve banking would not would stop people putting their savings in an ‘investment account’ which would then be lent out at interest by banks in just the way the ICB describes in the quote on page 16 (at the beginning of this blog). But if people wanted to keep their money 100% safe, they could also do this by putting it in a custodial account that could not be lent in to the economy. The need for deposit insurance would then be completely removed and the taxpayer would never again have to bail out the banks and see the enormous cuts to public services that have been the result. Our proposal does not argue for a ‘shrinkage’ in total credit in the economy – the total money money supply could remain at the same amount as it is today.