Mon 16 Jun 2014 1:26AM

Private banks should not be allowed to create NZ money supply

DD Dennis Dorney Public Seen by 29

In a number of proposals on monetary systems that I have followed, participants have stated their dislike for the present system whereby the private banks create nearly all (97%) of our money supply, yet I am unaware of any proposal that tests the level of support for banning this practice.This is intended to fill that gap.

So, this proposal is specifically only asking "that we support modernising the money creation process by removing it from the hands of private banks."


Dennis Dorney Mon 16 Jun 2014 1:31AM

"It seems to me that this is the first necessary step towards working out what should be put in place of private bank generated money, to decide whether the Reserve Bank should create all our money (it creates 3% at present), or whether something more radical should be suggested.
My wording has been chosen to make possible a straight "Yes", if you agree that the private banks should not create money or "No" if you think they should have that power, or dont believe they create money any how.
In their submissions people are quite welcome to suggest what ought to replace private bank created money. Such comments will be useful if this proposal goes to an incubator session, but please keep such comments simple because they are not relevant to the actual vote.
Also, I hope that voters will vote "Yes" or "No". The proposal has been phrased to make that possible. I dont see the point in either an "Abstain" or "Block" vote.


Dennis Dorney Mon 16 Jun 2014 1:37AM

As background I have outlined below the present system and its faults:-
The Current System
Nearly all the existing money supply is created or controlled by the Private Banks. Physical money (notes and coinage) is created by the Reserve Bank. It amounts to only 3% of the total money supply. Most of the remaining 97% is created by the commercial banks and exists only in electronic form on their computers. A relatively small amount of money is created by the Reserve Bank as reserves to settle imbalances between commercial banks. This money remains within the banking system.
Most of banks' profits come from loans to, and deposits by, customers. Deposits become legally the property of the bank to use as it will regardless of what type of Account they are put into. The money shown on your Bank Statement is not necessarily securely held by the bank and in any case is at risk if the Bank fails. In practice a portion of deposits is held as security against a run on the bank or against bad debts.
Loans are not made by taking money from a saver and transferring it to a borrower as is widely assumed. Whenever a loan is made by a bank and that amount has been place into the borrowers bank account, money has been created from thin air, at no cost to the bank, as interest bearing debt. This fact is confirmed by the Bank of England in its Spring 2014 Bulletin.
In practice the banks can lend as much as they choose. The only limits to loan creation are:- market demand, the amount of reserves withheld, and the banks willingness to take a risk. Virtually all money now in existence began as loans created in this way, as debt, and therefore cannot be erased without reducing total money supply, or by loan defaults, which leads to recessions. The creation of new money at interest, without any goods having been created, leads to devaluation of the dollar. All such loans are therefore inflationary.
When loans are repaid the money is erased. It does not stay in the money supply as people assume. The interest on the loan must also be repaid which places extra pressure on the money supply. That requires an injection of money, which can only be obtained by new loans, with interest. There is clearly no end to that dilemma. Debt grows exponentially and cannot be repaid.
At present NZ banks will be allowed to fail. If an examination of books shows that a bank can survive by freezing a portion (up to about 20%) of depositors’ funds, that will occur. Otherwise the bank will be liquidated and creditors will be paid out according to their priority, of which depositors rank last.
Clearly the present system is deeply flawed.


Amanda Vickers Tue 17 Jun 2014 3:20AM

I agree, Denis that the present system needs modernising. Exactly how this eventuates is a very interesting topic, which has been a rich and diverse conversation on this site. However you are right, the first question needs to be asked. That is do we continue the present system? It is a no-brainer to me why we should remove the privilege from banks of creating money they don't have and charging us interest on it. The interest we pay comes from hard earned money from the real economy. We we always need more to pay yesterdays's loans - which is why it is unsustainable. Also, this is why wealth is continually being transferred from our economy and resources and shipped off to the overseas shareholders. To be honest, once the system is seen for what it is - it is obvious it is insane.


Poll Created Tue 17 Jun 2014 3:21AM

"that we support modernising the money creation process by removing it from the hands of private banks." Closed Fri 20 Jun 2014 3:08AM

"that we support modernising the money creation process by removing it from the hands of private banks."


Results Option % of points Voters
Agree 100.0% 1 AV
Abstain 0.0% 0  
Disagree 0.0% 0  
Block 0.0% 0  
Undecided 0% 4 MW DD LY MK

1 of 5 people have voted (20%)


Amanda Vickers
Tue 17 Jun 2014 3:23AM

Private banks have a unique privilege in that they can make profit by charging interest for money they don't have. It is our economy that ultimately pays for these massive bank profits, shipped offshore to shareholders.


Amanda Vickers Tue 17 Jun 2014 3:55AM

Two very relevant papers to this discussion, are the Bank of England, and the IMF discussing money creation.

Bank of England publication: http://www.bankofengland.co.uk/publications/Pages/news/2014/051.aspx

IMF paper: The Chicago Plan revisited: homefile:///Users/amandavickers/Downloads/120801_IMF_report_The_Chicago_Plan%20(5).pdf


Loui Yukich Mon 23 Jun 2014 5:49AM

seems to be a bit of a no brainer really

I have in my mind an approach that I address to every politician I encounter and its about principled decision making, i.e. a process where we refer all decisions to a fundamental principled position

the defining question I put to them is whether they believe that macroeconomic design decisions should be based on a philosophy that; economies should be designed to serve the masses or economies should be designed where masses exist as servants to the economy

this is the fundamental principle that the party should first determine before moving onto to the micro economic issues, AKA the guiding light


Max Klein Sun 29 Jun 2014 5:57PM

You all miss the point that the interest rate is NOT! Removed from the money supply. So: if you repay your debt of 100000 by 12% banks get 112000 and 12000 will NOT be deleted. The banks just reinvest them into the economy and somebody gets them as payment for their products.

The fact that this creates a concentration of money and power to decide over it in the banking sector could be seen as problem.

The fact that as population grows the money supply has to increase or deflate but the opposite is true because they don't add money to our economy but just temporarily add it creates the problem of scarcity of money without taking debt or taking the money from someone who also needs it. So new generations or entrepreneurs who add new products to our society (thus add a new supply and demand which needs to be carried by the already existing money) make the money scarce and this makes it necessary to let the money flow faster.

(because the same (for example)100 trillion dollars must be used to pay more products and to pay more people than before)(thus the prices must get lower (Deflation) or more money must be created or the money must flow faster)

There are problems due to the whole monetary system but it's bot directly the creation or interests which make it problematic.


Dennis Dorney Sun 29 Jun 2014 10:13PM

I'm not sure that I follow this. You appear to be saying that as population and production increases there is a need for more money in the economy, but why is that a problem? If the private banks could not create electronic money as loans with interest and the Reserve Bank created the appropriate amount of money and spent it into the economy (as notes and coins already are), there would be no dollar devaluation. This is surely the ideal solution.
The present dollar devaluation is one of the side effects of interest being added to all new money creation. If the banks created money interest free that would probably work up to a point, but why would they do that since their profit derives almost totally from interest.


Malcolm Welsford Sun 29 Jun 2014 11:11PM

*from @terangikaiwhiriake thread; @dennisdorney
Instead of trying to overhaul a draconian banking system perhaps the discussion should be about alternative local currencies that is reflective of any given region.

I don’t see any positive outcome using the private banking cartel to trade between ourselves and to fund local projects. In the US hundreds of alternative currencies are being used successfully.

Perhaps a peer-peer-cpytro/hard currency combination.


Dennis Dorney Sun 29 Jun 2014 11:54PM

I support local currencies as well, but it seems to me that they are only suitable for local trade. Years ago I was involved in the LETS system which eventually failed. This is the problem with purely local currencies. If they fail, what next?
I personally believe that private banks, owned by share-holders trading on the stockj market, should be banned. I also think that compound interest should be banned because in the real world any exponential growth of products or materials is not possible, so an exponential growth of interest is not possible in the long run either.
Banks should be Trustee or Credit Union, or structured like the Co-operative Bank. Interest should be linear or fee for service over time (which is the same thing).
None of these things is mentioned in the proposal because we need to start with what is easily achievable.


Max Klein Thu 3 Jul 2014 6:32PM


„You appear to be saying that as population and production increases there is a need for more money in the economy, but why is that a problem?“

A problem today with this systematic:
Banks today delete the money after it was created and repaid. There is no adaption of the money supply to theses basic needs for more money: if more people start to coexist and trade simultaneously to the already exising businesses, more money is generally necessary to exist.
Today we have to take it away from another, start spending it faster or earning it faster.
All of that has its limits today.

„If the private banks could not create electronic money as loans with interest and the Reserve Bank created the appropriate amount of money and spent it into the economy (as notes and coins already are), there would be no dollar devaluation. „

The idea is very soon limited because of monopoly and fraud due to ideas of personal benefit before peoples benefit, which could easily break the system.
To make this really work in the long run and to make it withstand fraud, you have to make it self regulatory and easy for everyone to get into the roles of checks and balances.
This means: equal the forces of top-down and bottom-up (make it also a local decision and a decision of all trading participants) and balance the powers to decide whether businesses are qualified to create money for them [et them exist] or not and to which extent [who will get nto it, when and what will we do?].)

„The present dollar devaluation is one of the side effects of interest being added to all new money creation.“

Please show me how money devaluation is a side effect of the interest rate in money creation.
I don't see it. Please also show me how it could NOT be majorily influenced by all the other factors that have influence.


fine but something i hate about buying regionl is the restricted quality. Sometimes i need more. Consider this in situatoins where you have a health problem and there is one worldwide expert and just they can help you, in your region you would die. People don't seem to like to learn ans explore a lot if they get older and this makes the neccessary to replace if you have higehr demands. So i really can't stay just local with my needs. I/we have to think of another way.

If you want to ban compound interests you have to ban interests.

If you want to ban private banks,
owned by share-holders trading on the stock market,
you basically have to ban the possibility of a bank buying or collaborating with a business. Additionally you have to ban a collective to invest in businesses. No way.......

I recommend you to really question what you hear and think and synchronize or compare it to reality.

As you are the leader of this discussion i reccommend to you to rather focus on a step by step way to find a new system by going step by step through the problems of the old one.