Latest posts by Paul Zinchenko (see all)
- Blockchain for Finance Conference - 03 Oct 2016
- Breitenbach: Vollgeld will revolutionise the money - 09 Sep 2016
- Brexit Bulletin: Are banks already planning the Big City Exit? - 25 Aug 2016
It is an old theory that getting a new incitement in Europe as populism would give political gains and anxiety increases concerning the steadiness of financial institutions: deprive the banks of their ability to generate money, and hand it over to the state.
Even some of the insiders, such as Frank Breitenbach, found the idea to be quite appealing. He is currently combining the position of a vice-president at KfW IPEX in Frankfurt with his work at Monetative. Monetative is an initiative which aims to re-establish the system known in Germany by the name of Vollgeld (the most accurate translation would be “whole money”).
In an interview on 12 August, Breitenbach mentioned that there is too much liquidity in today’s market and that the situation present now reminds of the one they had in 2008 right before the crisis occurred. He said, “I have the feeling that another financial crisis will happen.”
The solution which Vollgeld suggest lies in handing central banks a full control of the money supply. It would be obligatory for the commercial banks to back their loans 100 per cent with deposits, no matter if they are coming from capital, saving, or their own borrowings.
To put it simply, lenders have to be deprived of the opportunity to create money out of nothing.
Those in favour of Vollgeld say that change is called for, inasmuch as it would help avert the credit booms which are the main cause of the financial bust. In that way, central banks would ascertain that the real economy has the liquidity which is needed and no more.
Breitenbach stated, “The amount of money that the central bank will pump into the system should be in line with economic growth”.
While not many in Germany are in favour of the Vollgeld system, Breitenbach revealed that about 100 members in his organization support the system, and elsewhere it’s gathering even more pace. A Swiss version of the system gathered enough signatures required for holding a plebiscite on the subject, and the referendum is expected around 2018.
It would be 85 years after the very first version of Vollgeld was brought into play. Back then it was introduced as a part of the Chicago Plan of banking reforms by leading US economists including Irving Fisher in the wake of the Great Depression. Those ideas did not find realization back then, but the continuous economic prosperity lasting from 2008 awakened new interest.
The analogue of Vollgeld in U.K is known under the name of Positive Money, an initiative which also advocates central-bank financing of government expenditure known as “People’s QE”.
The implementation of Vollgeld is in the pipeline. Breitenbach shared his opinion saying that the system has to be either introduced in all 19-nation euro area or the single-currency bloc must be broken up. Except the stability worries caused by complications with implementing a new system, one cannot be fully sure that the region’s citizens will put their trust in unelected monetary officials any more than their commercial counterparts. The distrust might be especially notable in Germany where the European Central Bank is even now viewed with skepticism.