Hats off to the Swiss! I never thought I’d see the day when an initiative to reform money and banking originated in in that little haven for the world’s mega-rich to stash their ill-gotten gains! Just goes to show how much things have changed/are changing!
I hope and pray promoters of the move can get the message across to enough of their fellow citizens before the referendum is held – and I imagine they will have plenty of opposition. The Swiss have this nifty system whereby, if a petition carrying enough signatures is presented to their parliament on any issue, it automatically triggers a national referendum.
Working for sovereign money
The Vollgeld Initiative did just that – and the government is now committed to asking their people whether they want to remove from private bankers the right to create money. Well, you can bet those bankers won’t let that happen without a hell of a fight! If our experience in New Zealand with the referendum on electoral reform is any indicator (and I’m sure it is), the forces of established finance and capitalism will focus all their considerable might on retaining their inalienable right to rip off their fellow earthlings to feed their own greed.
No date has as yet been set for the referendum – and no doubt large sacks of Swiss francs will be expended by interested parties on mounting a huge propaganda campaign to persuade Swiss voters that supporting the Vollgeld Initiative will herald in the end of the world as we know it. Others might argue that would not be altogether a bad thing!
Up until the 1980s we had a political party in New Zealand committed to doing exactly what those Vollgeld people want to do. The Social Credit movement won twenty-one per cent of votes cast in our 1981 General Election, but was denied fair representation in parliament by the ludicrously undemocratic electoral system operating in those days. Nevertheless, shocked out of their complacency by the strength of public support, the forces of reaction combined to deprive Social Crediters of even their minimal parliamentary representation and effectively wiped out the party as a voice for change.
NZ today – Paradise lost
According to Knight Frank Research, New Zealand now has “the world’s most frenetic property market”, with houses in Auckland selling for an average of $NZ 1 million. Young New Zealanders starting out in life are naturally unhappy they can’t afford to buy a house – something that previous generations took for granted. They are blaming, with some justification, foreign (and local) “investors” for driving up prices. But check this out: an article in the NZ Herald finance section noted, more or less as an aside, that “banks are having to borrow more money on the international market to fund their lending because of a slow-down in retail deposit growth.” So, can someone please explain why banks in New Zealand have to borrow US dollars (I suppose) from abroad and convert them into NZ dollars to lend to people in their own country?
Point One: Banks do not lend the money deposited in accounts to other borrowers. They actually create new money for lending by means of the fractional reserve system (see below).
Point Two: I understand that, if I want to import goods from abroad into New Zealand, I will probably have to use some internationally accepted currency – or work out some kind of bilateral agreement (see below). I totally fail to see, however, why I should have to borrow foreign currency from an offshore bank, and convert it into NZ dollars for spending on something, such as a house, that already exists in my country.
Good as gold?
The United States government is currently holding in custody an Iranian gentleman with Turkish citizenship, Reza Zarrab, on charges of money laundering. The charges relate to transactions that came to light in December 2013. It seems that Zarrab was facilitating a deal involving the Iranian and Turkish governments, a major Turkish bank, and a large amount of gold, with the aim of circumventing a United States trade embargo on Iran.
Well, certainly it’s not a nice thing to go behind your friend’s back and make deals to his detriment – but let’s look at the background. The United States slapped trade sanctions on Iran in 1979 after an Islamic revolution ousted the Shah, a US puppet who had ruled the country since a CIA-sponsored coup overthrew the democratically elected government of Mohammed Mossadegh in 1953. The revolution came after 26 years of misrule during which the rights of most Iranians were subordinated to the interests of the United States oil lobby and a local elite. The Ayatollah Khomeini came to power, 52 American diplomats were taken hostage and held for 444 days, President Jimmy Carter’s reputation was irreparably tarnished, and anyone who wanted to remain friends with America was obliged to cut ties with Iran.
Turkey and Iran are next-door neighbours. They are Muslim countries and their people have a history of close ties going back millennia. They are natural trading partners, and both have goods and services the other needs and wants. Turkey complied with the US’s trade embargo for decades, at considerable cost to its own economic well-being. It’s not always easy, however, for America’s allies to know what they have to do to keep Uncle Sam happy, since his government has a record of switching allegiances and stabbing former allies in the back to suit the short-term interests of its financial backers.
Increasingly, sovereign governments are looking at ways of implementing bilateral deals with trading partners to avoid having to use American dollars and comply with self-seeking American restrictions. Russia, China, and now Turkey all seem to be looking into this very sensible strategy.
Nevertheless, they have to be careful. It may look like common sense, but the present world financial order was set up for a reason – and it wasn’t just to facilitate international trade, and certainly not to improve the lot of the common man and woman in every corner of the globe. The international financiers who control most of what goes on in the world have ways of enforcing compliance with their will, or at least of punishing governments that fail to comply.
Migrant workers in Saudi Arabia. Spot the Arab
The United States government propped up financially and militarily the despotic 29-year regime of Hosni Mubarak in Egypt. When an Arab Spring uprising forced Mubarak’s removal, and Egypt’s first democratic election chose a Muslim to replace him (as you might expect an overwhelmingly Islamic country to do), the mavens of global finance withdrew their support, precipitating an economic crash that led to Mohammed Morsi’s ousting and the reinstatement of a military junta.
Venezuela, possessor of the world’s second-largest oil reserves, is currently experiencing a disastrous economic crisis largely as a result of plunging oil prices. Global oil prices are at their lowest levels for fifteen years, primarily because of the US transforming itself from an importer to an exporter of crude oil. Why would they risk the enormous long-term environmental damage of the oil fracking process? The US has a long history of interfering to ensure the failure and collapse of socialist governments in Central and South America. US-friendly Saudi Arabia can see out a period of low oil prices. Most of their labour force are indentured workers from impoverished Asian nations – unlike Venezuela, whose government has been trying for years to improve the lot of its own poorest citizens.
Turkey’s currency has taken a hammering in recent months on international “money markets”, losing more than 25% of its value since September. My theory is foreign interests opposed to Turkey’s President Tayyip Erdoğan supported local factions in their coup attempt on 15 July. Frustrated by its failure, the attack has turned to a slower but possibly surer method – attacking the nation’s currency to create economic hardship and strengthen local opposition to the AK Party government. For his part, Mr Erdoğan has encouraged citizens to show faith the Turkish Lira and sell off any stockpiles they may have of Yankee dollars.
F*** the government and the country – buy dollars!
Interestingly, soon after the presidential appeal, a large advertising hoarding appeared in a major thoroughfare near us, urging people to do the opposite, to buy foreign currency! I did my civic duty and complained to the metropolitan council – and the ten-metre billboard has now been removed.
But to return to the Swiss banking reform movement. The people behind the Vollgeld Initiative have set up a website providing answers to crucial questions. Here’s a brief summary:
What is sovereign money?
Most people believe that the money they have in their bank accounts is real money i.e. real Swiss Francs (or pounds Sterling etc). This is wrong! Money in a bank account is only a liability of the bank to the account holder, i.e. a promise the bank makes to provide money, but it is not itself legal tender.
What would change with the Swiss Sovereign Money Initiative?
The way the money system works today doesn’t comply with the intention of the Swiss Constitution (Article 99: “The Money and Currency System is a matter of the State”).
What are the fundamental advantages of sovereign money?
Sovereign money in a bank account is completely safe because it is central bank money. It does not disappear when a bank goes bankrupt. Finance bubbles will be avoided because the banks won’t be able to create money any more. The state will be freed from being a hostage, because the banks won’t need to be rescued with taxpayers’ money to keep the whole money-transaction system afloat i.e. the “too big to fail” problem disappears. The financial industry will go back to serving the real economy and society. The money and banking systems will no longer be shrouded in complexity, but will be transparent and understandable.”
I admit it – It was me!
A recent article in The Economist, while predictably coming out against the proposed monetary reform, nevertheless does provide a delightfully simple analogy to illustrate how the present system works:
“Children are sometimes reassured that new siblings arrive via friendly storks. The reality is messier. Money creation is much the same. The ‘stork’ in this case is the central bank; many think it transfers money to private banks, which act as intermediaries, pushing the money around the economy. In reality, most money is created by private banks. They generate deposits every time they make a loan, a process central banks can influence but not control. That alarms some, who worry that banks use this power heedlessly, thereby stoking disruptive booms and busts.
Campaigners in many rich countries want to strip private banks of the power to create money. In Switzerland members of the “Vollgeld Initiative” presented the government with enough signatures in December to trigger a national referendum on the subject. Bank deposits, they point out, make up some 87% of the readily available money in Switzerland, vastly exceeding notes and coins. Since money creation is the main fuel of both inflation and growth, they argue, it should not be in private hands, let alone entrusted to institutions that are prone to binge and purge.”
Simple enough, huh? If I were you, I’d cut and paste those two paragraphs into my next blog post so that all my readers could learn the truth.