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by David J. WestonProsperity, May 2000

Money is a marvellous invention, enabling people to exchange their labour and energy with others. When used with wisdom, it can enhance a community; used foolishly, it can destroy a community.

Currencies reflect exchanges at different levels of society, and depending on how the currency is designed and used, can enhance or destroy value. Some are centralised; others decentralised.

What effect do centralised and decentralised currencies have on economies?A great deal; for currencies act as feedback loops to the area they serve, monitoring where energy is needed. Centralised currencies extract value out of hinterland communities into centralised banking systems in the metropolitan cities. Allow a pound to be extracted out of your community, and that is one less pound that someone in your community could have spent in your community. It could be called the ‘divider effect’. Centralised currencies usually benefit elites in elite places. Decentralised currencies give direct feedback, generating and regenerating local economic activity. A decentralised or local currency will stay in a community creating the ‘multiplier effect’ whereby the local currency circulates and recirculates value. A local currency benefits local people.

What lessons are to be learned from that analysis in terms of the situation in Britain today? The English (rather than British) pound holds sway on these islands, with the exception of Eire, which has its own Irish pound, the ‘punt’, which floats against the pound (but not the Euro). What would happen if a community or series of communities, say within Wales, were to create a Cymru punt for tourists to buy at a discount with their English pounds? From the writings of Jane Jacobs we learn that the lower value of the regional/local currency would encourage exports, and because imports would be more expensive, would increase import replacement, leading to generation and regeneration of local industries, and of Lexports exports of locally created products and services. The Cymru punt would activate the ‘multiplier effect’ leading to a revitalised Welsh economy.

Can such a currency be created by a municipality?

Yes, any community in Wales, or even better a consortium of municipalities, could resolve to create legal tokens to sell to tourists to enable those tourists to buy punt funded, locally produced, goods and services.

Depending on the commodity, some businesses might even sell goods imported into Wales from the pound economy. The implications are significant, and exciting. Such a model could inspire more.

But the fear of those who control the centralised money system is financial insubordination and independence, and they will attempt to undermine our creative instincts. But that should not inhibit us, for the history of mankind is the history of the struggle between centralist and decentralist forces. Paradoxically the centralised state put up the research money which created the decentralised Internet by which we can disseminate decentralised ideas. If we can implement these ideas we will all gain. It will truly be a ‘win-win’ game.

CURRENCY DETERMINES SOVEREIGNTY

Throughout history, whomever has controlled currency has determined sovereignty, where ‘sovereignty’ simply means the ability of a community to make decisions at the appropriate level, in the interest of its citizens.

Where the currency that circulates within a community is an external one, there is an inevitable leakage of value and energy. Thus the pound sterling, controlled by the Bank of England, currently determines the economic fate of the countries of the UK. In Scotland, the distinctive notes issued by the Scottish private banks are tied to the pound sterling. When the Bank of England sneezes, Scotland gets a cold….

Where the currency that circulates within a community is an internal one, there is a retention of value and energy, and a constant renewal of that economy.

So, how do we create and retain local and community self-reliance? And how do we stop the haemorrhaging of wealth from our community?

It is important to first analyse the way the leakage has been, and is, happening, and thereby devise means of stopping it. Understanding the role and flow of money is key, as ‘money’ is the energy symbol which represents the three factors of production of labour, capital and natural resources and what happens to them.

Essential to regaining control of the local and regional economy is control of both its cheque book and its currency. In Worgl, Austria, during the height of the last acknowledged Depression in the late 1920s, early 1930s, the town solved its unemployment within six months, and became a prosperous community within one year. It did so by creating its own community currency and spending it into existence.

With the Worgl schillings, workers were able to buy food, local farmers able to sell their crops, materials were bought and all were able to pay their local rates and taxes in Worgl schillings. The experiment caught the imagination of 200 Austrian mayors who wished to emulate it, and regenerate their own local economies. But the experiment also caught the attention of the Austrian National Bank which felt threatened by this example of financial insubordination and independence, and through the Austrian Supreme Court had the enterprise closed down.

This should not discourage us from creating a similar enterprise. Jane Jacobs, in herCities and the Wealth of Nations (especially Chapter 11) highlights the effectiveness and efficiency of city currencies.

A ‘WIN-WIN’ PROPOSAL

Is there a way that everyone can benefit: both local producers and inhabitants, and those from outside a community? Yes! Here is a proposal to stop the escape of locally created energy value, of which money is a key expression, and to enable the revival of local and regional economies by way of Lexports through the creation of a local/regional enterprise currency.

We propose that since tourism is an export, it should be used as the initial basis of creating the local/regional currency which will eventually become self-reliant. In order to have a distinctive unit of account, and to be able to distinguish between the English ‘pound’ and the local/regional currency, we propose to use ‘punt’, the Welsh word for ‘pound’, preceded by the name of the region concerned ie. Cymru/Welsh Tourist Punt.

Exporting via tourism, especially if it is ecologically appropriate, would seem to be a sensible activity. It has the advantage that the ‘products’ the scenery, the local culture, history, friendly people etc, and the services are all renewable and sustainable.

So, how to encourage ecological tourism using a local/regional tourist currency?

THE POLICY DECISION

First, a local municipality needs to make the policy decision to create a locally validated, and locally valid, currency. This is not difficult, for creating symbols of value, other than the pound, is common practice air miles, supermarket tokens, green stamps, petrol stamps, barter cards, time pounds, local authority repair chits, and others, like the Swiss Wir. Many of these are created in addition to pounds, whereas the regional and local ‘Cymru tourist punts’ (CTPs) because they are exchanged for pounds, would be ‘instead of’, and therefore more valid and legitimate than those above. The exception is the local authority repair chit whereby some council tenants receive two kinds of chits. One for the materials; the other for the labour by which the tenants can either do the work themselves, or give to a neighbour to do. These chits represent a tradable local legal currency and highlight that councils can decide politically to create tradeable chits even now.

Although this decision can be taken by a municipality, it may be better taken by a consortium of municipalities. If it can be taken in conjunction with, in this case, the Welsh Assembly, so much the better, but its not essential. While we envisage denominations of 1, 2, 5, 10, and perhaps 20 punts, we might also consider local/regional ‘smart cards’ or even ‘tally sticks’ for transactions larger than 20 punts.

CULTURAL CURRENCY

Secondly, because currency can reflect the culture, particularly for the tourists, consideration should be given to creating truly beautiful local/regional notes as well as coins all designed by local crafts people. Each interested municipality could hold a competition for a local currency design which reflects that locality. Also, a design is needed which reflects the larger region eg. Cymru/Wales. For example, the local side of the currency could have the picture of a famous local person, or local scenery. The other side could have a map of Cymru/Wales, a dragon, a flag, and any other symbols reflecting the country’s attributes including its language. This may encourage tourists to take them away as souvenirs an export.

DISTRIBUTION METHOD

Thirdly, it is proposed that the Cymru tourist punt be sold to tourists at a discount determined by the local council and/or the Welsh Assembly; perhaps an experimental 5% to begin. A tourist would receive 1.05 punts for one pound sterling. The figure could be higher but should be determined only by elected, and therefore accountable, officials, and not by ‘the market’ which is unaccountable.

It is recommended that the currency be sold through public outlets such as Tourist Information Centres, local Post Offices and local council offices. Consideration should also be given to the establishment of other public outlets, like the Treasury Branch outlets set up in the 1930s in Alberta, Canada, which exist efficiently and effectively to this day. Further and this is also essential the Cymru punt should never be allowed to be speculated on, in any money market. If it did, it would be sucked dry of its value, and all the effort of many years could evaporate within days.

ACTUAL TRADING

Fourthly, local businesses would be urged to accept these ‘Cymru tourist punts’. Those businesses that agree to sell goods imported and paid for with pounds sterling will effectively be giving tourists a 5% (or whatever is the rate) discount. But it also means that they will get that tourist business. The tourists would be able to buy goods in shops and businesses for a literal 5% discount, by simply using their Cymru tourist punts. Businesses would indicate for which items and services they would accept CTPs.

At the end of a day any traders, should they wish, could trade in their punts for pounds at a discount of a couple of per cents higher than the discounted figure, as a handling fee. But this may be unnecessary, as shown in the following….

BEYOND TOURISM

Fifthly and this is key as this currency begins to circulate, it will increase the possibility of businesses being able to pay their staff partial wages in Cymru punts. That may at first sound like a cut of 5% in wages. However, as the momentum gathers and the circulation increases then local producers like farmers, horticulturalists, bakers, cheese makers, beer and cider makers, apiarists, wood craftsmen, potters, glass blowers, and other local manufacturers will likely, as in Worgl, begin to trade between each other in CTPs. Therefore, workers will be able to buy those local and regional products at the same price as before, because they are using punts. Within Wales, therefore, it would be a level playing field. Further, locals may decide to exchange sterling pounds for Welsh punts and be able to gain from the discount. Businesses which do accept the ‘Cymru tourist punts’ are giving a 5% discount to the tourists, but that is for those products which are ‘imported’ with sterling pounds; but for goods and services produced within Wales in punts, traders will not be giving any discount at all. The tourists will still be getting a good deal. Everybody wins!

So, commodities produced within the region such as beer, bread, meat, could be traded in the local currency for local consumption. It also means that these commodities are now beginning to be produced at 5% cheaper than using the sterling pound. That means that Lexports of these local products will increase, bringing more prosperity to Wales.

IN CONCLUSION

Currency determines sovereignty, where ‘sovereignty’ simply means the right of citizens to make their own decisions about the rules which daily affect us all.

This is why, if the Canadian Parliament as they are being urged to do by the American government accepts the US dollar as its currency and the privately-owned Federal Reserve Bank as its central bank, Canadians will immediately lose their sovereignty. Likewise, if the British parliament accepts the Euro as its currency, Britons will lose their sovereignty to a non-democratic, non-accountable central bank.

Likewise, if the countries in Britain continue to accept the English pound sterling as their currency, they will be denied the ability to make decisions at the appropriate level. A community losing its sovereignty is like signing all its blank cheques and then giving them away! As individuals we wouldn’t do that, nor should we as a community.

Let cities, regions and countries create their own currency which reflect their own culture and their own economic destiny, based on the principle that decisions made and actions taken should be at the most local level possible, with decisions made and actions taken at more centralised levels only as appropriate.

Let Wales invite tourists to exchange their sterling for the Cymru tourist punt at a discount which will be mutually beneficial. They will be able to buy goods within Wales cheaper than using sterling. Through the ownership and control of their money the Welsh, in turn, will be encouraged to make and buy local products. This will boost their economy, and their exports, and provide local employment for local workers. This really is a ‘win-win’ situation.

Copyright © David J. Weston, May 2000

by David J. WestonProsperity, January 2002

An alternate London currency could be issued which would help to raise money for London Transport. Along the lines of the Welsh Currency idea, (See the May 2000issue of Prosperity), the currency would be sold at, say, a 10% discount, meaning that £1 will buy £1.10 worth of ‘£ondons’, or £100 would buy £110 worth of ‘£ondons’.

They could be sold through tourist centres, London civic offices, and, of course, the Underground and Transport offices. These could then be used in participating businesses in London.

‘£ondons’, or ‘Tubes’ could act as an alternate currency which would even float against the pound but which would not be allowed to be speculated on in any so-called ‘money market’.

As this becomes an acceptable London currency, then workers could get paid in ‘£ondons’, and certain local materials could be bought with ‘£ondons’ for the rebuilding of infrastructure, including the Tube. Specifically, ‘£ondons’ would be available for purchasing season Underground tickets.

This currency would generate productive activity within London, and could become a model for many places.

Others, such as Dr Shann Turnbull of Australia, are also advocating such local currency economies, suggesting the name ‘Transits’. Also see Cities and the Wealth of Nations by Jane Jacobs, especially Chapters 11 and 12.


Please print out, photocopy and distribute these articles. Also copy and paste them to emails, and circulate widely, and please include all the essential contact information below. Thank you.

Essential Further Reading:
PROSPERITY: Freedom from Debt Slavery
is a 4-page quarterly Journal which campaigns for publicly-created debt-free money.PROSPERITY is edited and published by Alistair McConnachie and a 4-issue subscription is available for £10 payable to PROSPERITY at 268 Bath Street, Glasgow, Scotland, UK, G2 4JR. Tel: 0141 332 2214; Fax: 0141 353 6900, Email: contactus AT ProsperityUK DOT com  http://www.ProsperityUK.com All back-issues are still available. The 40-page Report,Clarifying our Money Reform Proposals, launched at the 2006 Bromsgrove Conference, is available for £10 payable to PROSPERITY and is essential reading for beginners.

The Grip of Death: A study of modern money, debt slavery and destructive economics by Michael Rowbotham, [Jon Carpenter Publishing, 1998] and Goodbye America! Globalisation, debt and the dollar empire by Michael Rowbotham, [Jon Carpenter Publishing, 2000] and Creating New Money: A monetary reform for the information age by Joseph Huber and James Robertson [New Economics Foundation, 2000] are all available fromPROSPERITY.

Prosperity, April 2002

Salt Spring Island, off Vancouver, has a population of 10,000. On the 15 September 2001, Salt Spring Island Dollars were launched at the Island’s largest annual gathering, the Farmers Institute’s Fall Fair. They are the brainchild of the Sustainable Salt Spring Island Coalition which, in the fall of 2000, had been looking at ways to establish a local currency which would avoid the problems of the "alternative" currencies, such as Toronto Dollars, LETS and Hours systems.

They discovered the main problem was that none of the present alternative currencies were 100% redeemable into their national currency, and so many people were unwilling to use them if they couldn’t "pay the bills."

However, the Salt Spring Island Coalition reckoned that if the currency couldgenerate a profit then it could go into circulation through a one-to-one exchange with the Canadian dollar. It could be backed 100% by the national currency. To their knowledge this had never been achieved by any local currency, anywhere in the world.

Essentially, it works this way: The notes come into circulation through the local credit union which exchanges Canadian dollars ($) for Salt Spring dollars ($$).

The Canadian dollars are then placed into a Reserve Fund run by the Salt Spring Island Monetary Foundation (SS IMF), where the amount gathers interest in the conventional way.

Since they’re fully backed by Canadian dollars, then local traders are quite happy to take the Salt Spring dollars.

The more Salt Spring Islanders use their Salt Spring dollars then the more funds for the Community is raised; in two ways.

Firstly, because $$’s come into circulation through the exchange of Canadian dollars — which stay in a Reserve Fund and collect interest — then the more $$’s which stay circulating, the more interest will continue to accumulate in the Reserve Fund.

Secondly, the currency has a two-year expiry date. Up to, and including, the expiry date, $$’s may be redeemed for either Canadian dollars or for new issues of $$’s. Any currency that has not been redeemed for Canadian dollars by the expiry date — for example, any notes which have left the island, or have been lost — are classified as ‘out of circulation’ and lose their face value, even though they retain their collector’s value.

As Salt Spring Dollars are removed from circulation, so their equivalent value in Canadian dollars remains in the Reserve Fund and is, effectively, a profit.

An accounting process takes place regularly to determine how much of the SS IMF Reserve Fund is available for disbursement back into the community.

The aim of the currency is to promote local spending and provide a revenue resource for community projects.

What would be needed to do something like this, say, in a county, a region, or a city, in Britain? It would need Local Authority backing. Indeed, it would probably require the Local Authority to initiate the project. It would need the support of the local Chamber of Commerce, the local media, and the regional Tourist Board, among others. It would need a group of people who had the commitment, and the funding to devote the time. It would need artists and expertise, accountants and book-keepers. It would need liaison between local currency representatives and local credit unions and banks in the area. It would need anti-counterfeiting expertise. Would it even be allowed?

In the following text, edited with permission from their websitehttp://saltspring.gulfislands.com/money a double dollar $$ sign indicates a Salt Spring dollar.

Eric Booth writes:
Up until recently, there have been virtually only two currencies accepted in Canada, the Canadian Dollar and the US Dollar. American tourists can usually convert their $US into Canadian at the going exchange rate, at either merchants or banks.

Both currencies really have no "loyalty" to where they are used. The cash flows in and out of communities and has no lasting benefit. At the same time, rural communities across Canada have suffered from drops in local spending due to the lure of lower prices in larger communities and, more recently, the internet. Moreover, big stores, like WalMart, have all resulted in lower levels of local spending in smaller communities.

To offset this phenomenon, over the years, there have been a number of alternative forms of local currency proposed in Canada. The LETS System, Ithaca Hours Systems, and the Toronto Dollar projects are perhaps the best known of these local currencies.

TORONTO DOLLARS (TDs)
These have been in circulation for the past three years. People living in, or visiting, Toronto can exchange Canadian dollars for TDs, on par, one for one. There are currently over 250 merchants in Toronto who accept TDs.

If merchants wish to redeem the TDs, they have taken in, for Canadian dollars, they receive 90% of the face value. The other 10% goes to the charitable organization that runs the TD program. Therefore, merchants are urged to re-circulate the TDs rather than cashing them in, to avoid being subject to the 10% discount.

In our discussions with local merchants, many felt they could not support a 10% discount, at a time when they are operating on extremely tight margins and may not want to, or cannot afford to, discount their merchandise on an ongoing basis.

When the Salt Spring Dollar Program was in development, we noted that while the TD program did promote local shopping, the question of merchant acceptance, due to an ongoing 10% discount, was a serious factor to be dealt with. Compare the 10% discount to the 2-3% merchants pay on VISA or Mastercard purchases.

To overcome this "acceptance problem", we spent months developing and planning to create a unique new model for alternative local currency. The success of that planning is now evident in the results.

Acceptance level by the business community, of our new rural currency, after only two months, on an island of only 10,000 permanent residents, is over 95% and still growing.

Compare the number of businesses accepting Salt Spring Dollars after only two months — 120+, with those accepting Toronto Dollars after three years — 250+. And, we now estimate that close to 100% of merchants will soon be accepting them.

HOW DID WE ACHIEVE THIS?
A mixture of strategic development and implementation, unique design, long-term business planning, and, perhaps most importantly, by making the Salt Spring Dollar the first, alternative currency in Canada that is backed 100%, by the Canadian dollar.

Prior to launch, we garnered the support of all major businesses, the local Chamber of Commerce, the local credit union, two major banks (Bank of Montreal and the CIBC) and even the Canada Post service.

MERCHANTS BENEFIT
Merchants accepting Salt Spring dollars benefit in a number of ways over current methods of payment:
– Salt Spring dollars promote local shopping.
– Coinage charges at banks are reduced due to the use of $$1’s and $$2’s.
– Mastercard/VISA/Debit card charges to merchants are eliminated. This can amount to an additional 1-3% income.
– Merchants show community support by accepting Salt Spring Dollars.
– If a local Municipality is participating in the Salt Spring Dollar Project, and makes use of funds from the Reserve Fund account, merchants will benefit in reduced property taxes.
– As more funds are generated through the Salt Spring Dollar Project for community projects, fewer requests for donations from the community are likely to be made on business owners

HOW DO SALT SPRING DOLLARS WORK?
To make the Salt Spring Dollar Project a success, we incorporated a number of key elements:
– Limited editions of bills — currently a maximum 20,000 per issue.
– Well known Salt Spring Island artists’ work.
– Impressive design and graphic elements.
– State of the art, anti-counterfeiting measures.
– Exact dimensions of Canadian dollars, allowing for use in counting machines and Automatic Teller Machines (ATMs).
– Expiry dates.
– Revenue generation.
– 100% backed by Canadian dollar Reserve Fund.
– Accepted on par, with no service charges, at local banks and credit unions.
Merchants can offer higher exchange rates for the $$’s, instead of having discount sales — for example by treating Salt Spring dollars as $1.10 Canadian dollars when goods are purchased — thereby promoting local spending and use of $$’s by tourists and locals.

HOW THEY ARE ISSUED?
Salt Spring Dollars go into circulation via the local credit union. Merchants, or members of the community, exchange Canadian dollars for Salt Spring dollars in amounts of $$50. A number of merchants, using $$’s as part of their daily cash float, offer to supply Salt Spring dollars in smaller amounts.

The Canadian dollars are placed into a Reserve Fund account, held by the Salt Spring Island Monetary Foundation (SS IMF) a registered, not-for-profit society.

Within the next few months, ATM machines will also be used to dispense $$20s.

Merchants deposit Salt Spring dollars along with their Canadian dollars, and the participating financial institutions convert the Salt Spring dollars, on par, into Canadian dollars in their account by debiting the SS IMF’s Reserve Fund account.

EXPIRY DATE
Each bill has an issue date, and an expiry date — usually 2 years after issue. At anytime during the two-year period prior to their expiry, the bills can be used at participating merchants and/or exchanged for Canadian dollars at participating banks and credit unions.

LIMITED EDITIONS
Featuring the work of Salt Spring Island artists on the back of the bills, Salt Spring dollars are issued in limited editions of either 5,000 ($$100’s), 5,000 ($$50’s), 10,000 ($$10’s and $$20’s) or 20,000 ($$1, $$2 and $$5).

When there is demand for more $$’s in circulation, a new issue is printed with different artwork.

The impeccable quality, brilliant design, security measures and limited edition aspects of Salt Spring Dollars make them instant collectors items for currency collectors, tourists and locals alike.

The "collectability" factor, combined with the expiry dates has created a formula for exciting revenue generation.

EXAMPLE OF RESERVE FUND USE
Say $50,000 has accumulated in the local Reserve Fund account. On a day-to-day basis, only $5,000 of the Reserve Fund account is actually used for the exchange of $$’s back into Canadian dollars.

The balance of $45,000 is made available to the Municipality by the Salt Spring IMF on an interest-free line of credit, guaranteed by the Municipality.

The more monies placed in the local Reserve Fund account by the community, the lower taxes will be necessary to cover any conventional lines of credit.

Revenue Potential
Say your community has 100,000 tourists visit each year. If, on average, they left with just $$1 in their pocket, $100,000 Canadian dollars would accumulate in the Reserve Fund each year.

After two years, there would be $200,000 Canadian dollars. Say 10% of the Salt Spring dollars were redeemed during that period. That leaves $180,000 Canadian dollars in the local reserve fund.

At that point, the SS IMF will issue $$180,000 new Salt Spring dollars.

50% of those Salt Spring dollars are given to the Participating Municipality or community to use for community projects, and 50% is directed back to the SS IMF.

Any accrued interest on the Reserve Fund account is also directed to the Participating Municipality or community.

The Reserve Fund is left to increase the following year, by another $100,000, and so on. This allows the Municipality to eventually operate interest-free, while providing a source of ongoing revenue that can be used within the community.

Plus, there is the potentially thousands of dollars extra in local merchants pockets due to reduced transaction fees and increased local shopping.

MUNICIPAL/COMMUNITY ADVANTAGES include lower taxes, revenue generation and interest-free credit lines.

For annual operations, virtually every Municipality in Canada must either issue Municipal or Community Bonds or carry a line of credit at a bank.

The interest rates required to be paid on such bonds or lines can range from approximately 2-7%. This results in higher taxes within the community to cover the interest charges. Therefore, for each $100,000 in the reserve fund, there is a potential saving to the community of $2-7,000 per year.

Participating Municipalities in the Salt Spring Dollar Project can make use of the local Reserve Fund account by guarantee, and therefore bypass interest charges.

For example, compare the use of Community Bonds to Salt Spring Dollars. With a $100 Community Bond, the purchaser — who could be a corporation, a member of the community or someone not even in the community — collects the interest on the bond, but cannot use the $100 for a period of time — say two years.

However, if the person takes that same $100, but exchanges it directly into Salt Spring Dollars instead of buying a Community Bond, then the Municipality will benefit in the following ways:
– 50% of any of the $$100 that goes out of circulation prior to the expiry date — which represents profit — is made available to the community for worthwhile projects;
– The Municipality saves the interest it would normally pay on the bond, and the community pays proportionally less in tax;
– The Municipality collects any interest on the portion of the $100 in the local SS IMF’s Reserve Fund which is not used;
– The exchanger, gets to use the $$100 in circulation within their community, and any other participating community.

Thus, simply by exchanging some Canadian dollars into Salt Spring Dollars, the community benefits in a number of ways.


Please print out, photocopy and distribute these articles. Also copy and paste them to emails, and circulate widely, and please include all the essential contact information below. Thank you.

Essential Further Reading:
PROSPERITY: Freedom from Debt Slavery
is a 4-page quarterly Journal which campaigns for publicly-created debt-free money.PROSPERITY is edited and published by Alistair McConnachie and a 4-issue subscription is available for £10 payable to PROSPERITY at 268 Bath Street, Glasgow, Scotland, UK, G2 4JR. Tel: 0141 332 2214; Fax: 0141 353 6900, Email: contactus AT ProsperityUK DOT com  http://www.ProsperityUK.com All back-issues are still available. The 40-page Report,Clarifying our Money Reform Proposals, launched at the 2006 Bromsgrove Conference, is available for £10 payable to PROSPERITY and is essential reading for beginners.

The Grip of Death: A study of modern money, debt slavery and destructive economics by Michael Rowbotham, [Jon Carpenter Publishing, 1998] and Goodbye America! Globalisation, debt and the dollar empire by Michael Rowbotham, [Jon Carpenter Publishing, 2000] and Creating New Money: A monetary reform for the information age by Joseph Huber and James Robertson [New Economics Foundation, 2000] are all available fromPROSPERITY.

by David J. WestonProsperity, September 2003

Recently, the Swedes sent a resounding ‘No’ regarding adopting the euro, and a correspondingly resounding ‘Yes’ to retaining their own currency, and controlling their own financial destiny.

While the euro is largely a European issue, there is a message for others — that control of a country’s, or a region’s means of exchange is a prerequisite to control of its economy and culture. The attempts of corporate finance to persuade a people to adopt a centralised currency, like the euro, is a strategy of centralised control, in which so-called ‘free trade’ is a bedfellow.

The other side of the coin — so to speak — is highlighting the importance of subsidiarity currency, that is, currency as a local means of exchange which serves the local community or region, and not the privatised branch banking system.

In 1985 I was invited, and gave a paper "Green Economics: the Community Use of Currency" to The Other Economic Summit in London. The major points of my paper are documented in The Living Economy edited by Paul Ekins of the New Economics Foundation. I pointed out that localised currencies have been used successfully throughout recent history, and that the basic principles behind them are still valid.

Here, then, is a proposal for the establishment, via the Scottish Parliament, of a SCOT — Scottish Currency for Organic Trading — a currency whose value will be based on organically grown food.

This currency would be valid in Scotland only, for the settlement of debts, and the payment of taxes — two of the legal prerequisites of a ‘currency’.

SCOTs would be distributed in several ways. One, as credit and subsidies to organic farmers, who will indeed be able to pay, in part and eventually in whole, their taxes, and be able to pay for staff and for Scottish produced items they need.

Another distribution would be that, upon arrival in Scotland, tourists would be encouraged to purchase SCOTs at tourist and government offices, at a (say) five per cent discount. Retailers would be encouraged to accept SCOTs, effectively giving the tourists a five per cent discount.

The retailers would be able to use the SCOTs to buy organic food, pay staff, and trade in Scottish goods and services, and of course buy organic food, at SCOT prices, to the great benefit of the Scottish economy, and concurrently themselves. As the currency would be protected, by not being allowed to be traded on money markets, the value it represents would remain in Scotland, instead of being haemorrhaged off, as currently happens.

There will be other advantages, and to help understand them, I recommend readingJane Jacob’s Cities and the Wealth of Nations, particularly Chapters 10, 11 and 12.

See also David Weston’s articles Green ‘Win-Win’ Economics: Tourist Exchange Punts in Walesin our May 2000 issue, and Underground Economy: Financing the London Tube in the January 2002 issue.


Please print out, photocopy and distribute these articles. Also copy and paste them to emails, and circulate widely, and please include all the essential contact information below. Thank you.

Essential Further Reading:
PROSPERITY: Freedom from Debt Slavery
is a 4-page quarterly Journal which campaigns for publicly-created debt-free money.PROSPERITY is edited and published by Alistair McConnachie and a 4-issue subscription is available for £10 payable to PROSPERITY at 268 Bath Street, Glasgow, Scotland, UK, G2 4JR. Tel: 0141 332 2214; Fax: 0141 353 6900, Email: contactus AT ProsperityUK DOT com  http://www.ProsperityUK.com All back-issues are still available. The 40-page Report,Clarifying our Money Reform Proposals, launched at the 2006 Bromsgrove Conference, is available for £10 payable to PROSPERITY and is essential reading for beginners.

The Grip of Death: A study of modern money, debt slavery and destructive economics by Michael Rowbotham, [Jon Carpenter Publishing, 1998] and Goodbye America! Globalisation, debt and the dollar empire by Michael Rowbotham, [Jon Carpenter Publishing, 2000] and Creating New Money: A monetary reform for the information age by Joseph Huber and James Robertson [New Economics Foundation, 2000] are all available fromPROSPERITY.

by Richard GreavesProsperity, October 2000

Richard Greaves had a version of the following printed in The Brecon and Radnor Express on the 21 September 2000.

The fuel crisis in which Wales was the most severely affected area in Britain is now coming to an end.

Sooner or later the government probably will reduce tax on fuel, but if it does, there will either be cuts in government spending or increased tax on something else.

But why do we pay so much tax in the first place? What about interest on the national debt — something governments barely mention?

Presently about £30 billion per year comes out of our taxes to pay this — about 2/3 the amount spent on health and 50% more than the defence budget.

The national debt represents the total amount borrowed by successive governments over the years, chiefly from the banks.

It is presently about £400 billion and is going up all the time. In 1980 it was £90 billion and in 1949 it was£25.2 billion.

Of course, not just governments borrow — individuals and businesses do so as well.

Today 95%+ of our money supply is now made up of credit in the form of personal and business loans, mortgages and overdrafts.

Only cash is created debt free and interest free by government, and that now accounts for less than 5% of the total supply. The rest is an interest bearing debt repayable to private banks.

Banks create this money, or credit, out of nothing by a process which, in the words of J.K. Galbraith "is so simple that the mind is repelled". [Money: Whence it came, where it went, Penguin 1975. Quoted on p. 18 of the 1995 paperback edition.]

This begs the question, if banks can create money out of nothing, and lend it to the government which then spends it into the economy on public projects, why shouldn’t the government bypass the banks and create the money itself free of debt and interest and spend it on schools, hospitals and transport.

The savings to the public purse would be enormous. Under the present system, if a new hospital is built, we continue through our taxes to pay the principal, and especially the interest, on the construction cost long after the hospital has been completed.

As individuals, businesses and whole nations struggle under an increasing burden of debt the question is being asked — why is our money supply, the means by which we exchange goods and services, effectively under the control of the banking fraternity, for whom it provides vast profits, rather than the state?

It is a question that goes to the very heart of who really exercises control in the world today — as banker Mayer Rothschild is once reputed to have said, "Give me control of a nation’s money, and I care not who writes its laws."


Please print out, photocopy and distribute these articles. Also copy and paste them to emails, and circulate widely, and please include all the essential contact information below. Thank you.

Essential Further Reading:
PROSPERITY: Freedom from Debt Slavery
is a 4-page quarterly Journal which campaigns for publicly-created debt-free money.PROSPERITY is edited and published by Alistair McConnachie and a 4-issue subscription is available for £10 payable to PROSPERITY at 268 Bath Street, Glasgow, Scotland, UK, G2 4JR. Tel: 0141 332 2214; Fax: 0141 353 6900, Email: contactus AT ProsperityUK DOT com  http://www.ProsperityUK.com All back-issues are still available. The 40-page Report,Clarifying our Money Reform Proposals, launched at the 2006 Bromsgrove Conference, is available for £10 payable to PROSPERITY and is essential reading for beginners.

The Grip of Death: A study of modern money, debt slavery and destructive economics by Michael Rowbotham, [Jon Carpenter Publishing, 1998] and Goodbye America! Globalisation, debt and the dollar empire by Michael Rowbotham, [Jon Carpenter Publishing, 2000] and Creating New Money: A monetary reform for the information age by Joseph Huber and James Robertson [New Economics Foundation, 2000] are all available fromPROSPERITY.

Ken Palmerton, James Gibb Stuart and Alistair McConnachie discussProsperity, April 2001

On 18 April 2001, Money Reformer Ken Palmerton visited the offices ofProsperity. We took the opportunity to discuss the present Foot and Mouth crisis and the possible Money Reform lessons we could learn.

ALISTAIR: The justification for the slaughter policy is to achieve "disease free" status in order to re-open the export markets. In other words, we have an issue here which is a perfect example of our dependence on globalisation.

JAMES: I’m reminded of my home village. Not so long ago, the local farmer raised the beasts in the field next to the village. When the time came, they were walked down the street to the local abattoir, and they appeared in the village butcher’s shop the next day. Local production for local consumption. What happens now? They’re transported massive distances by truck to be slaughtered, packaged, the meat shipped abroad — and probably shipped back again! — to appear in a supermarket, at the other end of the country.

KEN: We’ve got to get to the farmers and persuade them that they’ve been conned. They’ve hooked their industry to the star of globalisation, and it’s going to sink them.

ALISTAIR: Yes, there’s an obsession with the global market, most evident from the leaders of the industry.

KEN: They’ve stopped looking at their local markets. I’m sure the farmers themselves know in their heart of hearts that what they’re doing is not sustainable, but the people who drive this industry — finance, supermarkets and agribusiness — have other concerns. Meanwhile the farmer sees his life’s work disappear, quite literally, in a puff of smoke!

ALISTAIR: To a very large extent the farmers are the victims of the system. They’ve had to adjust their farming methods just to survive within the present system. It’s the economics of survival. If there was a sustainable alternative that was politically possible, I think most would gladly have it.

KEN: The farmers are not taught why there is this drive for exports. This drive is because we can’t make our own home market self-sustaining, because there is a "deficiency of effective demand" as Keynes said. This is because there is a "flaw in the system" as the Social Crediters used to say.

Productive industry does not put into circulation enough money to buy its own production. This is the C. H. Douglas "A+B Theorem" [See The Monopoly of Credit]. If we didn’t do anything about it, civilisation would come crashing down.

But we do something about it — we borrow. For example, all the shops around here will give you credit. They will supply the goods now, but you pay for it with future earnings. In my view, that is the proof that there is a flaw in the system. Albeit, purely an accounting flaw.

ALISTAIR: And the way around it is … ?

KEN: I would suggest that only the State, or somebody given that responsibility by the State, can do the following — calculate how much money is required to make that system of production function and put that money into circulation.

The best way, in my view, is straight into the pockets of the consumer, via a basic income for example. Our ability to produce is not in doubt, but our ability to consume is in doubt.

So we do crazy things, like trying to sell outside our economy what can’t be bought inside. And what do we want in exchange — money! Every country can’t have a positive balance of trade! The idea that every country in the world can benefit from this system is mathematically impossible.

Look what we are doing. We are sacrificing a whole vital major industry on that altar of globalisation. That’s the poor, bloody, farmers for you. Well, maybe our job is to help them to realise that they are being led by the nose, along a path which is not sustainable.

Take the IMF model. It’s a simple one. Borrow, invest, produce, pay your debt. There isn’t a country in the world where it has worked. Not one! And they’ve been doing it for 50 years. I would have thought that is long enough for an experiment. Come on, let’s have a few different experiments.

What is the government offering farmers? More loans! Come on! They are up to their eyeballs in debt already. Why do you think the farmers in Alberta in 1935 voted in block for the Money Reformers who would deal with their debt?

JAMES: One of the cruellest things they did in the last 100 years was to destroythe Land Banks. The Land Banks provided finance for farmers. The critical point can be illustrated as follows. I was in industry. We could bring material into our workshop at 8 o’ clock in the morning. We could process it and despatch it by 4 o’ clock in the afternoon, and invoice it the next day.

The farmer puts seed in the ground and it is 9 months before he gets a product. He raises beef stock and it’s 2 years before the calves are fat enough to provide an income. The point is you need a long term finance facility if you’re a farmer. The farmer has been competing in the same market as the industrialist and he can’t do that.

KEN: That’s right. The farmer can’t influence when the sun is going to come out, when it is going to stop raining, or when some disease is going to hit.

ALISTAIR: I think the justification for the slaughter policy, that is, to achieve "disease free" status in order to re-open the export markets, falls down on both counts.

Firstly, it doesn’t make economic sense to base policy entirely upon achieving disease-free status for the export markets, because disease-free status is a highly vulnerable condition, and can be lost at any time.

Secondly, there’s no telling when the export markets may fall or disappear. Are we really meant to believe that all the Europeans are going to rush out and buy British meat again? After all this, I think it’s likely that nobody abroad will want to buy our meat, disease-free or not.

Therefore, we’re going to need to look at new ways of exploiting domestic demand. An alternative to relying upon the export trade is to develop new home grown markets right here. A shift from globalisation to localisation is needed.

KEN: I think so. It may well be that farmers are going to have to go back to doing things which they may think are old fashioned.

ALISTAIR: We need alternative polices which will enable us to maintain a successful farming industry, whether or not we have disease-free status.

We import more beef, lamb and pork than we export. This means there is an untapped home market for national produce. However, many British farmers remain dependent on export markets because supermarkets buy cheaper meat from countries with low wages, and low health and environmental standards.

Farmers Markets, however, have been growing successfully throughout Britain. These Markets are able to provide quality food below supermarket prices. These Markets also boost the local rural and tourist industries. We should have one in every town in Britain.

KEN: We’ve got to do some re-thinking and it may well be that this foot and mouth is sufficiently serious for some farmers, and the policy makers, to also do some rethinking.


Please print out, photocopy and distribute these articles. Also copy and paste them to emails, and circulate widely, and please include all the essential contact information below. Thank you.

Essential Further Reading:
PROSPERITY: Freedom from Debt Slavery
is a 4-page quarterly Journal which campaigns for publicly-created debt-free money.PROSPERITY is edited and published by Alistair McConnachie and a 4-issue subscription is available for £10 payable to PROSPERITY at 268 Bath Street, Glasgow, Scotland, UK, G2 4JR. Tel: 0141 332 2214; Fax: 0141 353 6900, Email: contactus AT ProsperityUK DOT com  http://www.ProsperityUK.com All back-issues are still available. The 40-page Report,Clarifying our Money Reform Proposals, launched at the 2006 Bromsgrove Conference, is available for £10 payable to PROSPERITY and is essential reading for beginners.

The Grip of Death: A study of modern money, debt slavery and destructive economics by Michael Rowbotham, [Jon Carpenter Publishing, 1998] and Goodbye America! Globalisation, debt and the dollar empire by Michael Rowbotham, [Jon Carpenter Publishing, 2000] and Creating New Money: A monetary reform for the information age by Joseph Huber and James Robertson [New Economics Foundation, 2000] are all available fromPROSPERITY.

When it comes to debt, there’s no disputing that we are in a rather big hole and it’s getting bigger all the time.

Private debt in the form of loans to individuals and businesses is rising at more than £60 billion per year and is probably set to top £1000 billion very soon — the latest figure I have is £680 billion for 1997 (Mike Rowbotham’s The Grip of Death).

Public debt in the form of the National Debt touched £430 billion in 1998 after rising continuously for more than 20 years.

Then suddenly a few weeks ago we had the Chancellor basking in the limelight of having been able to pay off £30 billion of national debt at a stroke.

The financial pages were full of praise. For a while, there’ll be a little less interest to pay, but as all those who understand the debt based money system know, sooner or later the figure will inevitably rise again.

You can’t really blame the Chancellor — after all no-one, government included, wants to run up more debt than necessary — especially in an election year when it’s important to keep taxes down.

And there’s that other important matter of the convergence criteria for joining the EU single currency which the government is keen to do — national debt has to be kept within certain parameters in relation to gross domestic product.

But how on earth was he able to spring this one? Out of our taxes?

No. What is actually happening is that the burden is being transferred to the private sector instead.

Firstly there’s the Private Finance Initiative. There’s hardly any sector of public services now where privatisation isn’t the order of the day, from the health service to education to housing — you name it and the private sector is in it. It’s a great way for the public sector to cut expenditure and borrowing in the short term. But to fund their involvement the private sector must borrow from the banks.

In addition, the Treasury has had a dramatic windfall in the form of £25 billion from the sale of licenses for the new generation of mobile phones — a tidy little sum that almost covered the national debt repayment.

However as BBC2’s Money Programme pointed out a few weeks ago, the telecommunications companies have run up huge debts to do this and many are in a precarious position as a result.

British Telecom has run up £30 billion of debt, and consequently the board has had to face the full wrath of the shareholders.

While Gordon Brown continues to pat himself on the back for his "sound management of the economy", will BT’s outgoing Chairman Sir Ian Vallence, appreciate how the debt based money system landed his company in such a big hole?

And as for you and I, well, even if for a while, we aren’t paying quite so much of our tax to cover the interest on the national debt, we can rest assured that we’ll soon be paying more for the products and services of BT and all the others to cover the interest on their debts.

Anyone else want to buy a hole!


Please print out, photocopy and distribute these articles. Also copy and paste them to emails, and circulate widely, and please include all the essential contact information below. Thank you.

Essential Further Reading:
PROSPERITY: Freedom from Debt Slavery
is a 4-page quarterly Journal which campaigns for publicly-created debt-free money.PROSPERITY is edited and published by Alistair McConnachie and a 4-issue subscription is available for £10 payable to PROSPERITY at 268 Bath Street, Glasgow, Scotland, UK, G2 4JR. Tel: 0141 332 2214; Fax: 0141 353 6900, Email: contactus AT ProsperityUK DOT com  http://www.ProsperityUK.com All back-issues are still available. The 40-page Report,Clarifying our Money Reform Proposals, launched at the 2006 Bromsgrove Conference, is available for £10 payable to PROSPERITY and is essential reading for beginners.

The Grip of Death: A study of modern money, debt slavery and destructive economics by Michael Rowbotham, [Jon Carpenter Publishing, 1998] and Goodbye America! Globalisation, debt and the dollar empire by Michael Rowbotham, [Jon Carpenter Publishing, 2000] and Creating New Money: A monetary reform for the information age by Joseph Huber and James Robertson [New Economics Foundation, 2000] are all available fromPROSPERITY.

by Richard GreavesProsperity, June 2001

by Conall BoyleProsperity, October 2007

It was J K Galbraith who said: "The process by which banks create money is so simple the mind is repelled. Where something so important is involved a deeper mystery seems only decent."

Well, it looks like the folks at the Bank of England (BoE) have done it! What at first seemed to be a simple matter of ‘seigniorage’ – profit made from the production, by the state, of the coins and bank notes of the realm – turns out to be a deeper mystery indeed.

Looking at the Annual Report and Accounts from the BoE for 2006 seems to produce a simple answer: On p.110, the Profit on Bank Note Issue remitted to Treasury in 2006 is given as £1,698mn (£1,743 less £45mn expenses). On p.112 in the same Report the Total Note Issue is given as:

2006 £36,914mn
2005 £35,416mn
Increase: £1,498mn
So its Profit=£1,698mn,
Change in Note Issue = £1,498mn.

Just a small difference of £200mn, perhaps explainable by some anomalies, like coin issue, or Scottish, Northern Irish or Channel Islands bank note Issue. So in my innocence I asked (in a letter 16th Feb 2007) why the £200mn difference?

The reply from the Public Information & Enquiries Group of the BoE (having been passed on from the Monetary and Financial Statistics Section of the Bank who apparently couldn’t answer this: why ever not?) on 16th March was:

The profit of issue paid over to HM-Treasury (£1,698mn in the 2006 Accounts) represents the sum earned throughout the financial year from the investment of the assets (assets holdings are shown in the Statement of Assets on page 110) which back the note issue, less expenses.
The change in notes in circulation, together with notes held in the Banking Department, (£1,500mn in the 2006 Accounts) is equal to the change in the value of the assets held rather than the profit made on those assets.
I hope this is helpful.
Diane Davies

This somewhat obscure answer set me off on a hunt to find out more. Since the BoE seem determined to avoid an explicit link between changes in note issue and ‘profit’ paid to HM Treasury, what were the facts?

How has note issue changed year by year, and how correspondingly has ‘profit’ changed too? (I use ‘profit’ in quotes because it should more properly be called seigniorage; yet another ‘deeper mystery’ by the BoE?)

To obtain the data for this I had to delve into each of the Annual Reports, as far back as available. The website only shows the last six years, but BoE kindly and promptly supplied me with Reports back to 1980.

First of all: Seigniorage? That’s the profit made by the Crown from issuing new money. It still applies to the Issue of Bank notes in the UK, or so it would seem: Immediately below is a graph which shows how this nice little earner paid out over the years 1980-2006:

So there it is. Seigniorage. To double-check where it comes from, let’s have a look at the change in the note issue. We should expect these two – Change in Note Issue and Profit on Note Issue – to march in step. But here is where the Galbraithian mystery starts to deepen.

My first question was: What is the Total Note Issue by the BoE? See first diagram below.

So how about the Change in Note Issue – taking year-on-year differences from the previous series? See diagram below.

These values are all over the place!

During 2005 it seems that the number of BoE banknotes in circulation actually fell. You might think that this means that HM Treasury would have to pay the Bank for its ‘loss’. Not so. Comparing the Profit (Seigniorage) paid out by the BoE with the Change in Notes in circulation shows that the Bank always pays the Government, even when note issue is negative.

So whatever method of defining seigniorage is used by the Bank of England, it bears no relation to changes in note issue, as we see from the diagram immediately below.

Returning to the Delphic comment by my correspondent at the BoE, that "The profit…represents the sum earned throughout the financial year from the investment of the assets…which back the note issue, less expenses."

Profit on investments? A bit more rummaging through the notes in the Report suggested that the ‘investment’ was a hypothetical one, equivalent to the Total Note Issue, and the earnings were to be calculated from the Bank’s Base Rate (latterly called Repo Rate).

Average annual Bank Rate changed during the period 1980-2006 like this:

Multiplying up the Total Note Issue times Bank Rate, and comparing it with ‘Profit paid’ shows, below:

AhHa! A very close fit. So now we know.

Seigniorage for the BoE is based on the Total Note Issue, multiplied up by the Average Bank Rate during that year.

A very obscure method of arriving at a simple calculation! Lucky indeed was the Chancellor in 1991 (Norman Lamont) who received a seigniorage cheque for £2.5 billion. Gordon Brown’s seigniorage payout in 2003 was less than half that – £1.2bn, despite a Budget twice as large in money terms, and an increase in note issue fivetimes greater in that year!

So in an obscure way, seigniorage exists, and results in a small payout to the Treasury.

Small, because it is about 1/4% (quarter per cent) of the Budget total. The word itself ‘Seigniorage’ has even turned up in a BoE publication (Andrews & Janssen – but only in a technical addendum): "Seigniorage (is)…earned on the amount of notes and coin in circulation outside the Bank of England" and adds (in an even more obscure footnote) "Seigniorage accruing to the Bank of England may be paid to the government as profit or in taxation, or may be retained by the Bank…"

CONCLUSION: We now know for sure that a form of seigniorage exists and is practiced by the Bank of England in relation to the issue of notes and coins. The method used to calculate the amount of seigniorage seems to be deliberately obscure, designed to hide the simple reality of what is going on. The securities held by the BoE are entirely mythical, and the payout is conjured out of thin air at an arbitrary rate of interest.

But why begrudge the central bankers their little charade!

One policy conclusion we can draw from this is that using cash – our own Government’s money – is more than a patriotic duty. It helps the public finances! The more we conduct our transactions in cash – either notes or coins – the more the public finances will gain, so long as the present system remains unchanged.

I suggest a campaign: "Pay less tax. Use our own money, the one with the Queen’s head on it, for as many transactions as possible. Don’t use cheques, transfers or especially don’t use credit cards."

If the same principle of seigniorage were to be applied to all of our money, including that created by private banks, then the Chancellor could rake in about £80 billion per year (taking the total of M3 or M4, around £1,550bn at 5.25%, the current bank rate).

M3 used to be considered the best definition of ‘broad money’, including all banking deposits. M4 adds to M3 some Building Society deposits and is now considered the main target for money supply. This would be equal to about 17% of the total of government expenditure.

SOURCES
J K Galbraith, Money: Whence it came, where it went, (London: Penguin Books, 1995, 2ed), p.18.

Bank of England Annual Report and Accounts for 2000 to 2006 are athttp://www.bankofengland.co.uk/ publications/annualreport/index.htm Earlier Reports can be obtained from the BoE.

Also from the BoE website: Peter Andrews and Norbert Janssen, Publication of narrow money data: the implications of money market reform, Bank of England Quarterly Bulletin: Autumn 2005.

Willem H. Buiter, Seigniorage, Discussion Papers 2007-8, March 1, 2007. Buiter is Professor of European Political Economy, European Institute, London School of Economics and Political Science – from LSE Economics website. He was one of the Monetary Policy Committee external appointments.


Please print out, photocopy and distribute these articles. Also copy and paste them to emails, and circulate widely, and please include all the essential contact information below. Thank you.

Essential Further Reading:
PROSPERITY: Freedom from Debt Slavery
is a 4-page quarterly Journal which campaigns for publicly-created debt-free money.PROSPERITY is edited and published by Alistair McConnachie and a 4-issue subscription is available for £10 payable to PROSPERITY at 268 Bath Street, Glasgow, Scotland, UK, G2 4JR. Tel: 0141 332 2214; Fax: 0141 353 6900, Email: contactus AT ProsperityUK DOT com  http://www.ProsperityUK.com All back-issues are still available. The 40-page Report,Clarifying our Money Reform Proposals, launched at the 2006 Bromsgrove Conference, is available for £10 payable to PROSPERITY and is essential reading for beginners.

The Grip of Death: A study of modern money, debt slavery and destructive economics by Michael Rowbotham, [Jon Carpenter Publishing, 1998] and Goodbye America! Globalisation, debt and the dollar empire by Michael Rowbotham, [Jon Carpenter Publishing, 2000] and Creating New Money: A monetary reform for the information age by Joseph Huber and James Robertson [New Economics Foundation, 2000] are all available fromPROSPERITY.

In 1998 James Gibb Stuart was asked to provide advice to the Malaysian government, which was then struggling against an IMF induced economic crisis. The following is taken from his Briefing Paper. Three days after receiving this material the Malaysian government announced exchange controls.

It has been suggested that I might make some comment on the current financial crisis which would be helpful to our Muslim friends in Malaysia and elsewhere.

Let us begin by noting that this is not a failure of Asia and its systems, but a reflection upon the creed of deregulated so-called "free market" finance capitalism which too many Asian nations have embraced.

Those who embraced it least are least affected. Those who accepted it without question are now faced with several years of reduced expectations, deprivation and ruin.

Why? Not necessarily because of their own faults and excesses, which could be many, but because the banking and financial model they so enthusiastically adopted is itself basically flawed, and possessed of a fatal instability.

It was not as altruists or benefactors that Western bankers ventured into Eastern markets, but as fugitives from a milieu which had reached the limit of its tolerance.

The deregulated "free market" finance capitalist system which prevails among the developed nations is based upon an ever increasing burden of debt, and when the societies within which it is practised approach their saturation point, it must find new outlets for its ever-increasing outflows.

The Western institutional lender has a much greater compulsion to lend than his prospective client has to borrow.

But now the lending has to stop. Eastern nations should be looking inward towards their own indigenous strengths and resources, rather than importing capital from abroad.

Once this fact is appreciated, some acts of self-preservation must follow:

FIVE ACTS OF ECONOMIC SELF-PRESERVATION
First comes a measure of foreign exchange control, to prevent the nation’s reserves, its financial lifeblood, from being sucked out by speculators.

Secondly, the progressive liberalisation of financial markets should be reversed, as this advance towards a global economy can rob developing peoples of the benefits of their own national resources.

For the same reason, and thirdly, there should be no inclination to privatise national assets as a device for paying off government debt. Such assets belong to the people, and should not be put up for auction, where market forces can consign them to foreign ownership. British experience of privatisation proves that selling assets to reduce national debt is only a temporaray expedient. They can only be sold off once, and when they are gone, the cycle of debt and borrowing continues.

In the matter of existing loans that have gone sour, it is impossible to generalise. Each situation must be dealt with on its merits, and acrimony and trade reprisals avoided. But, fourthly, there should be every endeavour to avoid further borrowing, particularly in US dollars. The recent round of currency devaluations has shown this to be a treacherous device whereby international entrepreneurs can buy up the local economy at bargain prices.

At this stage a clear appreciation is needed of what constitutes money, wealth and resources. Even without the lure of foreign financial inflows, we must ask, to what extent is the nation impoverished? The sun still shines. The crops still ripen. The eager workman’s hands and skills and energies are in no way diminished — provided he can have faith in his Government to protect his earnings and ensure an adequate reward for himself and his family.

Even in conditions of economic crisis, the primary priority is not to pay the bankers or reassure the stock markets, but rather to see that the people are properly fed and housed. A child dying of malnutrition in the midst of plenty is a crime against humanity and a blight on the bounty of Mother Nature.

That is why IMF ‘bail-outs’ which hinge upon further foreign borrowing, liberalisation of markets and cutbacks in social expenditure, should be rejected in utter abhorrence.

Fortunately, support for this viewpoint is finally coming through from Western sources, where the more independent-minded economists are now contending that the IMF and its harsh methodology should be drastically revised or abolished.

We spoke about debt-inflicted Eastern nations turning back upon themselves,looking inward at their own basic strengths and resources. In this regard, andfifthly, money incentives to stimulate commerce, agriculture, industry and social programmes, need not be in the form of expensive US dollars. All recognised, legitimate governments can on occasions create their own debt-free money and use it for essential national objectives. Despite banking protestations, this expenditure is not inflationary, since it does not increase the volume of debt — and it is debt, not the supply of money, which causes inflationary pressures.

These five acts: Stopping the haemorrhage of national reserves by means of exchange controls; reversing the liberalisation of financial markets; rejecting the privatisation of public assets; avoiding foreign loans or further borrowing; and steadfastly maintaining social programmes, with government created debt-free money if necessary — all in the face of IMF outrage — will cause the charismatic leader to be smeared and ridiculed abroad.

So, lastly, he must look to his personal and governmental security, avoiding risk of physical or political assassination; losing no opportunity to tell the public what he’s doing and why he’s doing it; laying it continually on the line that the current financial crisis is not his crisis, or their crisis, but a crisis of Western economics which will ultimately devour the whole of civilisation if it is not resisted and amended.

Further reading: "East Beats West: Justin Marozzi on how Mahathir Mohammed rescued his country and made fools of the IMF", The Spectator, 18 March 2000.

"Dr Mahathir has struck his own blow against the denizens of the Twin Towers without taking a single US life." James Gibb Stuart, The Herald (Glasgow), 24 September 2001.


Please print out, photocopy and distribute these articles. Also copy and paste them to emails, and circulate widely, and please include all the essential contact information below. Thank you.

Essential Further Reading:
PROSPERITY: Freedom from Debt Slavery
is a 4-page quarterly Journal which campaigns for publicly-created debt-free money.PROSPERITY is edited and published by Alistair McConnachie and a 4-issue subscription is available for £10 payable to PROSPERITY at 268 Bath Street, Glasgow, Scotland, UK, G2 4JR. Tel: 0141 332 2214; Fax: 0141 353 6900, Email: contactus AT ProsperityUK DOT com  http://www.ProsperityUK.com All back-issues are still available. The 40-page Report,Clarifying our Money Reform Proposals, launched at the 2006 Bromsgrove Conference, is available for £10 payable to PROSPERITY and is essential reading for beginners.

The Grip of Death: A study of modern money, debt slavery and destructive economics by Michael Rowbotham, [Jon Carpenter Publishing, 1998] and Goodbye America! Globalisation, debt and the dollar empire by Michael Rowbotham, [Jon Carpenter Publishing, 2000] and Creating New Money: A monetary reform for the information age by Joseph Huber and James Robertson [New Economics Foundation, 2000] are all available from PROSPERITY.

by James Gibb StuartProsperity, September 2001

by Michael RowbothamProsperity, September 2001

From Goodbye America by Michael Rowbotham

Whenever Third World debt cancellation is discussed, it is automatically assumed that somebody, somewhere has to suffer a loss. Either banks must cover the losses, taxes must be raised or Western governments must foot the bill.

In fact, Third World debts could be cancelled with little or no cost to anyone.Indeed, cancellation would be not only the simplest process imaginable, but to the general advantage of the world economy. All that is involved is a bit of creative accountancy — something at which the West has shown itself highly adept when this has suited its political purpose.

To appreciate this, it is essential to recall that the dominant form of money in the modern economy, bank credit, is entirely numerical. It is an abstract entity with no physical existence whatsoever, created in parallel with debt. Debt cancellation is therefore largely a matter of numerical accountancy. This is emphasised by the fact that only one factor prevents the immediate cancellation of all Third World debts — the accountancy rules of commercial banks.

Third World debt bonds form part of the assets of commercial banks, and all banks are obliged to maintain parity between their assets and liabilities (deposits).

If commercial banks cancel or write off Third World debt bonds, their total assets fall. Under the rules of banking, the banks are then obliged to restore their level of assets to the point where they equal their liabilities, usually by transferring an equivalent sum from their reserves. In other words, when debts are cancelled, normally banks suffer the loss.

There are two options for overcoming this accountancy blockage. They involve acknowledging that debt-cancellation is both desirable and possible, and adapting bank accountancy accordingly.

The first option is to remove the obligation on banks to maintain parity between assets and liabilities, or, to be more precise, to allow banks to hold reduced levels of assets equivalent to the Third World debt bonds they cancel. Thus, if a commercial bank held $10 billion worth of developing country debt bonds, after cancellation it would be permitted in perpetuity to have a $10 billion dollar deficit in its assets. This is a simple matter of record-keeping.

The second option, and in accountancy terms probably the more satisfactory (although it amounts to the same policy), is to cancel the debt bonds, yet permit banks to retain them for purposes of accountancy The debts would be cancelled so far as the developing nations were concerned, but still valid for the purposes of a bank’s accounts. The bonds would then be held as permanent, non-negotiable assets, at face value [pp.135-136] … The cancellation of international debts, or their conversion to national debts [see pp.140-143], is the sine qua non if Third World nations are to discover a path away from poverty and decline and towards more socially and culturally benign futures. The acknowledged need is for Third World countries to develop their agricultural and industrial infrastructure for their own domestic consumption and direct less effort towards export-led growth. To the extent that international debts remain, the export imperative remains.

The Third World cannot be said to be in material debt to the industrialised nations.The developing nations are in financial debt to international banks. But whilst not actually in material debt to the industrialised nations, because these bank debts are denominated in dollars, they are forced to behave as if they were in debt to the West, seeking a perpetual export surplus [p.145].

(Also see article here for how Third World debt is created.)


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Essential Further Reading:
PROSPERITY: Freedom from Debt Slavery
is a 4-page quarterly Journal which campaigns for publicly-created debt-free money.PROSPERITY is edited and published by Alistair McConnachie and a 4-issue subscription is available for £10 payable to PROSPERITY at 268 Bath Street, Glasgow, Scotland, UK, G2 4JR. Tel: 0141 332 2214; Fax: 0141 353 6900, Email: contactus AT ProsperityUK DOT com  http://www.ProsperityUK.com All back-issues are still available. The 40-page Report,Clarifying our Money Reform Proposals, launched at the 2006 Bromsgrove Conference, is available for £10 payable to PROSPERITY and is essential reading for beginners.

The Grip of Death: A study of modern money, debt slavery and destructive economics by Michael Rowbotham, [Jon Carpenter Publishing, 1998] and Goodbye America! Globalisation, debt and the dollar empire by Michael Rowbotham, [Jon Carpenter Publishing, 2000] and Creating New Money: A monetary reform for the information age by Joseph Huber and James Robertson [New Economics Foundation, 2000] are all available from PROSPERITY.