Full Reserve Banking: solving the problem of public debt and the positive interest-rate-growth-differential through debt-free money?
Authors: Martin Sauber, Benedikt Weihmayr
Abstract: In the post-growth debate a rising number of authors advocate monetary reforms (100%-Money, Full Reserve Banking), whose intention it is to prevent banks from creating deposits and establish the central bank as the sole issuer of money. This paper investigates the macroeconomic consequences of issuing debt- and interest-free money. A central issue in the context of a non-growth economy is the reduction of interest-rate-growth-differential. From a monetary-Keynesian perspective, we conclude that these reforms rather lead to higher interest rates and therewith worsen the conditions of reaching a stationary economy.
Ecological constraints to Post-Keynesian endogenous money theory
Authors: Corinne Pastoret
Abstract: In Post-Keynesian theory, the money supply is endogenous, meaning that banks could indefinitely accommodate the needs of a growing economy, with no ecological constraints. Because money endogeneity has brought our economic system closer to the planetary boundaries, ecological economists advocate 100% reserve requirements for banks. However, this solution might not have the expected results in an endogenous money framework, with unnecessary high costs in terms of employment and wellbeing.
This paper starts with Keynes’s refutation of the quantity theory of money, as he proposes to think in terms of flows of money and the motives for its creation and its uses, while banks are not depicted as creators of artificial money. Then, it is argued that ecological constraints can be integrated into the Post-Keynesian theory of endogenous money and banks. In particular, banks could play a crucial role both as ecological social accountants and ecological providers of credits.
Central bank public credit creation to support Green Investment: the case of Canada, 1935-1975
Authors: Josh Ryan-Collins
Abstract: It is widely accepted that transitioning to a low carbon economy will require massive investments in strategic green sectors of the economy. Yet with very high levels of public debt, fiscal expansion does not seem politically feasible whilst there is weak evidence that capital markets can provide the necessary funds. One option that has not been widely considered for achieving this is for central banks to monetize a green fiscal expansion. A major impediment to such a policy is the perception that it would damange the ‘independence’ of central banks and lead to inflation. However, during the period between the Great Depression and the 1970s when it was common for central banks to directly support government spending and debt management via what might be termed ‘public credit creation’. This paper examines in particular the activity fo the Bank of Canada from its inception in 1935 to 1975.
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