Revisiting an Alternative Method of Money Creation for the Benefit of States and Certain, International, and Supranational Institutions as a Possible Way Out of Capitalism

Abstract

In what precedes (especially in Sect. 2.2), one of the basic principles of monetary economics and monetary law has already been expressed, namely that money is socially engineerable.

4.1 The Social Engineering of Money Revisited

4.1.1 Historical Overview of Money Creation Systems in a Nutshell

4.1.1.1 Origin and General Functions of Money

In what precedes (especially in Sect. 2.2), one of the basic principles of monetary economics and monetary law has already been expressed, namely that money is socially engineerable.

This insight can be found in the writings of leading economists, in addition to academics in law, including the authoritative economist John Maynard Keynes.¹

The renowned historian Harari, in a comparable manner, indicated money as “a product of the collective, human imagination.”²

Ad Broere has described this insight as follows: “As long as we believe in money, we maintain it.”³

As we ourselves have already explained in more detail in our earlier writings⁴ and, in addition, in Sects. 2.2.5 and 2.2.6, briefly touched upon again, money, from a historical point of view, came into being when direct exchange economies evolved into indirect exchange economies. Such indirect exchange economies were characterized by the fact that goods and services were not exchanged (in main order) directly against each other, but through the enlistment of a third good, against which all other goods and services could be exchanged, yielding the general definition of money.⁵ This also immediately implies that money essentially came into being to fulfill a payment function, and that the other functions of money—such as, for example, the savings function—arose from this later in time.⁶

With the introduction of money, one of the greatest social upheavals in the history of mankind took place. In practical terms, money (initially) allowed a much smoother exchange traffic, since providers of goods and services no longer had to undertake the laborious search for a perfectly suited buyer for the goods and services they wanted to sell (who, in return, had to be willing to offer goods and services that the first mentioned provider was looking for himself).

With the introduction of money, this search became henceforth much easier, in that a provider of goods and services only had to look for a buyer willing to pay a sum of money for it (and, conversely, a demander for goods or services to look for a seller willing to receive a sum of money for it). As the use of money became, increasingly, generally accepted among the members of a (in modern terms) given people’s household, indirect barter itself also could be organized in an increasingly smooth manner.

However, this practice not only allowed a much smoother organization of barter, it opened, as aforementioned (cf. Sect. 2.1), also the way to an ever-increasing degree of labor specialization, which led to a further, additional peculiarity of indirect barter economies, in particular that the participants in such indirect barter could, henceforth, devote themselves to the manufacture of goods and services that were labor-intensive and/or did not generate high demand (which in turn opened the door to an evolution towards an economic system that increasingly started to focus on the production and consumption of all kinds of—intrinsically useless—luxury goods).

4.1.1.2 Certain Essential Characteristics of Money

Money did not only provide these practical benefits. At the same time, money paved the way to the abstraction—and thus greater possibilities of accumulation—of wealth (which, as a result, started to provide a breeding ground for greed and selfishness).

To understand the latter, one should be willing to take a closer look at some (early) historical forms of money.

From this, it quickly becomes clear that in the fledgling, indirect barter economies, as good as any good could be declared money, such as shells, salt, animal skins, teeth of (rare) animals, …

This in itself leads to the understanding that the (physical) form of money did not essentially matter much (which in theory is still the case), but that what matters, is the societal consensus—one might refer to a social contract—that within a given society, everyone will regard the same kind of good as money, and that everyone will be willing to adopt this good as money in their indirect exchange transactions.

This, in turn, leads to the still-valid understanding that money is what people agree upon—and therefore think—what money is.⁷ The essential characteristic of money, in other words, is that it is a conventional instrument.⁸

However, already early on in history, societies relying on an early use of money came to an additional insight (which, in a way, still provides one of the basic principles of present-day monetary systems), namely that in order for money to (continue to) fulfill its soci(et)al function as paying instrument for all other goods and services, the chosen form of money must be sufficiently rare.

It may have appeared that, for example, in a society that lived by the sea, shells will not have provided a useful form of money, since within such societies it became far too easy to acquire money, particularly by going shell collecting, rather than through the production of goods or services, which would have provided a recipe for economic inertia.

In more abstract terms, this implies that such a form of money that is (too) easily available to everyone cannot function as the basis for a sound economy, an understanding that still underlies most monetary systems, and translates into the intent to keep the accretion of the money supply within reasonable parameters (although it seems that, in modern times, monetary institutions sometimes dare to lose sight of this basic principle).⁹

With this insight came a search¹⁰ for ever more suitable forms of money, in which, gradually, a preference for sufficiently durable forms of money began to play a key role (since forms of money such as shells, for example, that were too brittle, could break too easily, entailing too great a risk of loss of value).

It should be clear from the foregoing that there was no requirement that the chosen form of money exhibit any (or much) intrinsic value, often quite the contrary. This observation also brings us back to an already before mentioned, basic insight in regard to money (and the use of money): what is important is not the nature of the chosen form of money—including the intrinsic value of the materials used to make money–, but rather the social consensus that that single, well-defined good is the chosen form of money, against which all other goods and services can be traded in a given economy.

Considering all these factors, it should come as no surprise that quite early in monetary history, a quasi-universal preference for (precious) metals as the chosen form of money arose. The criterion of durability played a leading role in this choice, in addition to, certainly with regard to precious metals (e.g., gold and silver), their relatively scarce nature.

Another fact that played in favor of metals and precious metals was the fact that it was possible to melt and cool such metals and precious metals, allowing them to be transformed into little pieces of a standard quantity. This, in turn, allowed for money coinage, which would become the dominant form of money, in numerous societies, for many centuries to follow.

This time it turned out that the chosen form of money also had an intrinsic utility and/or value (for example, in the case of iron and bronze because weapons—among other utensils – could be manufactured from them, and in the case of silver and gold, because they lent themselves to the creation of ornamental goods or decorative materials).

Nevertheless, in the resulting, fledgling coin-based monetary systems, the (nominal) money value of coins would often exceed their intrinsic value, so that money that took the form of coins in precious metals was in most cases worth more, nominally speaking, than the materials used to make them. The latter implied, in other words, that even this coinage continued to conform to the basic principle that money is what people within a given society—or within a given economic system—agree, and therefore think, what money is.

Money creation based upon the coinage of precious metals soon in history got monopolized by governments for a long time. This implied that such ‘governments’—whatever form these could take—reserved to themselves the right to melt precious metals into coinage (and prohibited this to other individuals). This found its symbolic expression in the fact that, throughout history, coins in (precious) metals were invariably inscribed with the effigy of the sovereign under whose auspices the coins were issued. Such government monopolies also explain why the nominal value of coins was often set higher than the intrinsic value of the (precious) metals used to make them, so that with a limited amount of (precious) metals, a much higher amount of coinage could be created.

In more recent times, the conventional nature of money would return to the fore, first with the advent of representative (private) paper money (which corresponded to a proportionate underlying quantity of coins or precious metals), then with the advent of fiduciary (private) paper money (which consisted of a multiple of the underlying quantity of precious metals) and, finally, with wholly conventional paper money (which no longer corresponded to a defined underlying quantity of precious metals).

In modern times, this conventional character of money started to provide the breeding ground not only for paper money, but eventually also for scriptural money (and its modern variant, electronic money), and, even more recently, bitcoin or NFT money (with the question, however, of whether the latter has already evolved into a fully-fledged form of money, or whether it does not rather constitute a mere—highly speculative—investment product).

4.1.2 Overview of the Current Systems of Money Creation

As money use came to dominate increasingly of the economy, the question of who is authorized to create money also became increasingly important.

In this regard, throughout history, we see a constant tension between private initiative and public authority. It appears that with the rise of strong public authorities, money creation also increasingly ended up in public hands, although since the rise of capitalism there has been an important setback, as a result of which money creation has from then on, increasingly, ended up in the hands of private institutions (as a result of which, in today’s capitalist societies, scriptural money created by private banks has become the dominant form of money).

As a function of who is authorized to create money (or believes himself to be authorized), money takes several distinct forms in the present age.

There is primarily (still) paper and coin money, which in most jurisdictions can only be issued by monetary institutions and/or governments (and which is generally, at least in Dutch, referred to as ‘chartaal geld’, and in English, as ‘cash money’ or as ‘chartalist money’).¹¹

In the words of Keynes¹²:

The State, therefore, comes in first of all as the authority of law which enforces the payment of the thing which corresponds to the name or description in the contract. But it comes in doubly when, in addition, it claims the right to determine and declare what thing corresponds to the name, and to vary its declaration from time to time - when, that is to say, it claims the right to re-edit the dictionary. This right is claimed by all modern States and has been so claimed for some four thousand years at least. It is when this stage in the evolution of Money has been reached that Knapp’s Chartalism - the doctrine that money is peculiarly a creation of the State - is fully realized.

(…)

And the Age of Chartalist or State Money was reached when the State claimed the right to declare what thing should answer as money to the current money-of-account - when it claimed the right not only to enforce the dictionary but also to write the dictionary. To-day all civilized money is, beyond the possibility of dispute, chartalist.

In recent times, some governments are thinking about giving chartalist money a different, especially digital form. A prime example in this regard concerns the project to issue a digital euro.¹³

In addition—and in the second instance –, there are so-called private forms of money that owe their origins to conventional instruments that have become prevalent in private legal relations and, from there, have evolved into a socially accepted form of money (which, incidentally, in today’s societies not only governs legal transactions between private individuals, but is also widely used by governments themselves).

For example, so-called book or scriptural money takes the form of a (book-entry) claim by a private legal person or a government(al institution) on a private credit institution (or other book-entry institution) and, consequently, is evidenced by a balance recorded in an account held by such individual or government with such credit institution.¹⁴ In other words, a person who has such a claim on a credit institution, evidenced by a bank account, owns a sum of scriptural (or book-entry) money corresponding to the amount of such claim.

In all this, it is useful to keep in mind how such a sum of money can end up in an account held with a credit institution. This can be accomplished through one of the following three variants¹⁵:

• A classic deposit. This takes place, as a rule, when a holder of a chartalist sum of money transfers that sum—consisting of a quantity of banknotes and/or coins—to a private credit institution, under the latter’s agreement to book that sum to an account in the name of the depositor. The latter will be able to arrange for it in the agreed manner, including through the possibility of requesting that sum in currency form, in addition to the possibility of arranging for the money to be transferred to another player in the economic traffic, but also, for example, for it to be converted into private, digital money on a physical medium (e.g., bitcoins on a central server).

• The receipt of a non-cash payment by another player in the economy. It has indeed become a common payment method to pay debts by non-cash payment methods (e.g., by wiring a sum of money, by use of a debit card, …). When a debtor pays his creditor through such a non-cash method, the latter’s claim against his credit institution grows (or, put differently, the balance in the latter’s bank account increases).

• A credit. It is especially in this third method that the magic of human imagination is most evident. In particular, our monetary systems all rely on the social consensus that a credit institution is permitted to grant credit ‘out of thin air’, specifically by booking the amount of credit into an account of the borrower, who thereby comes to derive the same rights from such a booking as the economic agents whose balance in a bank account is created because of methods (1) and (2) above, leading to the basic insight that, in our modern societies, money can see the light of day because a private credit institution grants credit to another economic actor.

  It should be kept in mind, however, that when using this third method of money creation, the lending credit institution will make a second set of book entries, in particular the entry of the borrower’s debt to repay the credit, increased with the agreed upon interest. A crucial difference between these two entries stems from the time factor. The entry of the credit balance in the borrower’s account—which in the bank’s accounts will take the form of a credit entry, with which the bank therefore admits a debt to the borrower—will immediately follow the granting of credit itself, while the recoveries, in accordance with what is agreed upon in the credit agreement, will be spread over time (which will result, from an accounting point of view, in the bank first debiting the amount to a long-term account, and then periodically transferring it from there to accounts evidencing a short-term repayment claim that is due).

This brings us to the insight that, in modern societies, money is enacted in two ways.

The first method involves the creation of currency or chartalist money (i.e., bills and coins and, since recent times, the idea of launching a public, digital currency, more precisely the digital euro¹⁶) by monetary institutions. The second method involves the creation of (private) scriptural money by private, lending credit institutions.

This insight immediately also makes it possible to define the money supply sensu stricto as the sum of the book balances at credit institutions (i.e., the claims of private and public account holders to use the balances in their accounts, either for cash withdrawals or for cash payments to third parties) and of the cash or chartalist money in circulation, or in other words the bills and coins other than those in the coffers of a credit or monetary institution.¹⁷ In the near future, one will have to take into account the amounts of public, digital currency—such as the digital euro—as well.

The legal system itself (which in modern societies manifests itself in a multitude of legal instruments, including laws in the material sense of the word and customs, in addition to conventional techniques) accepts both forms of money, which, in other words, implies that there is social consensus that there are two groups of institutions that can create new money, specifically the monetary institutions that can create currency—i.e., banknotes and coins, besides, in the near future, public, digital currency—and the private credit institutions that can create, out of thin air, new scriptural money by extending credit.

The question of whether money manifested in privately established digital bits relies on a power to create money is less straightforward to answer, to the extent that such bits are rather a tradable good acquired by someone who is willing to pay a sum of money for it—as a rule by a transfer of scriptural money.

From then on, the question becomes somewhat more nuanced. Old digital forms of money, such as the Belgian electronic purse money named ‘Proton’, generally arose from a transfer of a sum of scriptural money from a bank account to a material medium (e.g., a plastic card¹⁸), with the purchaser of such digital money paying a sum of (scriptural) money for this, in exchange for bits with which he could then, within limited circuits (e.g., merchants participating in the Proton-system), make payments. The recent bitcoin or NFT forms of money differ from this, in that there is an original creator who creates the digital bits out of thin air, in order to then transfer them over the Internet (either for free, or for a payment in an existing form of money, e.g., Euros or USD), after which a secondary market of these NFT bits can then be established (relying on a price formation, based on market mechanisms). However, such bitcoin or NFT forms of money, in most jurisdictions,¹⁹ may not (yet) be considered as a fully-fledged form of money, to the extent that—in contrast to the classical, chartalist and scriptural forms of money—they do not count as a commodity against which all possible other goods or services can be exchanged, in other words as a fully-fledged payment instrument. This means that the original (private) creator of a given bitcoin or NFT form of money, in essence, does not create money, but digital bits, for which a market may then emerge that is rather reminiscent of a market for investment products, albeit in this case consisting of investment products that intrinsically do not have much to them, except for some digital bits and the growing belief among a segment of the population that these are worth something and/or even that their value will increase.²⁰

In all this, in capitalism, the biggest kindlers of new money²¹ remain the private lending institutions, as most of the new money that comes into circulation is created because of the lending activity of the private banking sector. Just to give an idea of the gigantic sums involved: at the end of H1 2021, the total, global indebtedness was no less than USD 296 trillion²², and at the end of Q1 2022, more than USD 305 trillion.²³

4.1.3 Assessment of the Prevailing Systems of Private Money Creation

Far from being socially neutral, the rise and decisive role of private money creation is indicative of the extreme degree to which the capitalist monetary system relies on the dominance of a small niche of private market players, particularly the private credit institution sector.

The reason for this is, very simply put, that because of the agreement(s) underlying it, bank credit (based on which new (scriptural) money is created and put into circulation) must be paid back (implying that it will only be provided to a third party after the lending institution will be satisfied that the borrower will effectively be able to repay the credit granted).

This implies that borrowers—at the end of H1 2021, for an amount of outstanding debt of no less than USD 296 trillion, and at the end of Q1 2022, of no less than USD 305 trillion—all are required to accumulate a sufficient income to enable them to repay the credit they have taken out (enhanced with the agreed upon interest charges) (and in addition to have sufficient income left for themselves), all this taking into account the factor ‘time’ (i.e., the deadlines agreed upon in these credit agreements for such repayments, whereby in practice it appears that lenders in general, and lending credit institutions in particular, will often be willing to grant deferrals of payment, in other words, to agree on new repayment deadlines, a practice which is also referred to as refinancing of credit positions).

What is truly incredible about this story is that—already for several centuries—a social consensus keeps prevailing within capitalist societies in the framework of which it is considered normal that private credit institutions can grant such credit out of nothing (which is then, by definition, accepted as scriptural money), while all other economic actors and governments who take out such credit do not themselves have this ability and thus, due to the fact that, by definition, they themselves are not endowed with the power to create new money, will all have to make efforts to draw an income from these that will enable them to repay their (bank) credit.

To put it even more bluntly, it is mainly private credit institutions (or, phrased differently, private banks) that, through the granting of credit, pump new money into the economy and, with it, oblige all other economic players to work hard to repay that credit (enhanced with the agreed upon interest charges).

Given the extremely high frequency with which lending by private credit institutions occurs and the large sums involved, a further consequence of this observation is that, within capitalist societies, private credit institutions pull the strings to a much greater extent than the governments and parliaments brought to power by supposedly democratic means.²⁴

As a result, ‘capitalist feudalism’ is one in which, increasingly, global societies have become subject to the greed of the banking sector—and by extension, the financial sector—that, with this model, has assured itself an extremely easy model of big fortune accumulation on the hood of the rest of humanity.

4.1.4 Plea for a New System of Money Creation

The observations outlined in the previous Sects. 4.1.1–4.1.3 have a further downside that brings us back to the basic insight already formulated at the beginning of this Sect. 4.1, namely that money is no more than the product of the collective, human imagination, or, put another way, to the insight that money is entirely malleable.

In other words, it is the collectivity of humanity (that is part of a given people’s economy) that decides what money is.

This social engineering of money implies, by definition, its mutability, which on its own turn implies that there is no reason to stick to the prevailing, capitalist models of new money creation. John Maynard Keynes himself expressed this realization by stating that the dictionary of money can be rewritten (= “the right to re-edit the dictionary”).²⁵

This immediately leads to a further insight, specifically that the collectivity of humanity (still) could make money in a different way, or to make other money, or however one wishes to verbally express this insight. And if the past four to five decades have taught us anything, it is that there is an urgent need to begin to make use of this possibility, a theme that we ourselves have already explored in previous of our earlier writings,²⁶ and to which we shall return below, in Sect. 4.2, from the perspective of how such an alternative system of money creation might function for the benefit of nations (and their governments).

4.2 Views on a New Model of Money Creation for the Benefit of Countries

4.2.1 Main Objectives of Current Monetary Policy

4.2.1.1 Historically

It is striking that, although the prevailing capitalist system of money creation, based on the one hand on credit granted by private bankers, and on the other on legal currency created by monetary institutions, has been in place for some three or four centuries already, this system has never been the subject of any real societal debate.

This is even more surprising to the extent that money and money use, globally, count among the most fundamental building blocks of societies.

Instead, the systems of money creation and use grew out of the practice of late medieval banking, in which it was private bankers themselves who gradually usurped the power to create new money and, in doing so, ascertained an extraordinary impact on (the at the time emerging) capitalist economies.

In this, the intervention of governments has mainly been one of crisis management.

For example, the first central banks emerged at the end of the seventeenth century,²⁷ as a (government) response to excessive private paper money creation that had caused severe financial crises in various jurisdictions. In many cases, this government intervention led to the establishment of central banks with a legal monopoly on paper money creation,²⁸ after which the private banking sector itself took up the initiative of money creation through the system of money lending through bookings on accounts (or, in other words, through the system of scriptural money creation that is still in force today).

The subsequent monetary history has been one in which the central banking system has tried, with varying degrees of success, to control the process of non-cash money creation, including through subjecting access to currency (or, put differently, to chartalist money)—which the private banking sector itself continued to need to meet its commitments to pay out deposit positions in cash—to interest charging.

Whereas in the more distant past, the central interest rate policy of such central banks that, in various jurisdictions, grew out of these practices, more or less succeeded in steering money creation in the right direction, under twentieth and twenty-first-century, neoliberal monetarism, this set of instruments of monetary rigor has also gradually been eroded completely, with the result that in present times central banks no longer have the ability (or even attempt) to steer the process of scriptural money creation in any substantial manner.

4.2.1.2 Impact of the COVID-19 Pandemic

Considering the principles and working methods of capitalism, it should come as little surprise that the COVID-19 pandemic has not been of a nature to do much good to the further course of capitalist money creation. Hence, the events (particularly at the monetary and fiscal policy levels) that occurred during the COVID-19 pandemic are a perfect illustration of the problematic nature of the prevailing capitalist money creation for countries.²⁹

In an Oxfam report released on April 12, 2022 under the title ‘First Crisis, Then Catastrophe’,³⁰ it is said that the COVID-19 pandemic has forced entire nations into poverty, which Oxfam itself explicitly (and quite rightly) attributes to “a broken economic system”—in other words, to capitalism—that has left entire nations extremely vulnerable to crises.³¹

According to Oxfam, COVID-19 has stretched the finances of governments around the world to the limit. The cost of the recession caused by the pandemic has been immense, while the measures taken by many national governments to keep the effects of this pandemic manageable for their people required a lot of public money, and as a consequence increased the already very high public debts even more.³²

For developing countries in particular, the COVID-19 crisis has come on top of historically already very high debt burdens that have long caused many developing countries to struggle with the high cost of their debt burdens (so that, as a result, they had already before in recent history been forced to restructure their public debt, usually under assistance of the IMF and/or the World Bank). Lamentably, COVID-19 has dramatically magnified this problem, first because of the initial economic impact of the pandemic and the unprecedented global recession it caused as early as 2020 itself, and then because of low economic growth due to continued inequality in access to COVID-19 vaccines.³³

According to data cited by Oxfam, debt increased by 17% of GDP between 2019 and 2021 across the developing world, reaching an average of 63% of GDP for emerging and developing countries by early 2022. The debt burden for all the world’s poorest countries was estimated at USD 43 billion in 2022. According to Oxfam’s findings, that figure was for this group of countries, roughly, equivalent to almost half of their food import bills and public health spending combined.³⁴

In the opinion of Oxfam, such debt financing drains a lot of money from crucial spending in the social sectors (especially education and health and social protection) needed to meet the UN Sustainable Development Goals (and also to protect countries from future pandemics). As a result, for low-income countries, debt represented, in 2021, as much as 171% of all such social spending combined, and for least developed countries 125%. In more detail, this implies that as far as African countries are concerned, the debt burden was 2.2 times higher than their spending on education, 8.6 times higher than their spending on health care, and 20.7 times higher than their spending on social protection.³⁵

These findings have been confirmed by the World Bank’s most recent report on the matter, entitled ‘International Debt Report 2022’.³⁶

This report highlighted that the poorest countries eligible to borrow from the World Bank’s International Development Association (IDA), also referred to as IDA countries, at the end of 2021, spent over 10% of their export revenues on funding their long-term public and publicly guaranteed external debt. This concerned the highest proportion since 2000.³⁷

The report, in addition, highlighted rising debt-related risks for all developing economies (i.e., both low- and middle-income economies). At the end of 2021, the external debt of these economies amounted to USD 9 trillion, which was more than double the amount of a decade before. During the preceding decade, the total external debt of IDA countries themselves, nearly tripled to USD 1 trillion. This implied that rising interest rates and decreasing global economic growth risked tipping many of these countries into veritable debt crises. By the end of. 2021, about 60% of the poorest countries were already at substantial risk of debt distress, or already in debt distress.³⁸

The report, furthermore, indicated that during the decade 2011–2021, the composition of debt owed by IDA countries had changed significantly. A remarkable trend was that the share of external debt owed to private creditors had increased sharply. As a result, at the end of 2021, low- and middle-income economies owed 61% of their public and publicly guaranteed debt to private creditors. Moreover, the share of debt owed to public creditors that are not part of the Paris Club had soared. New credit granting countries included China, India, Saudi Arabia, United Arab Emirates, besides others.³⁹ As a further result, at the end of 2021, China had become the largest bilateral lender to IDA countries, good for 49% of their bilateral debt stock (up from merely 18% in 2010).⁴⁰

In this way, the COVID-19 pandemic offers yet another illustration of the fact that the capitalist money creation model (and by extension, the monetary systems of which it is a part) are very ill-equipped to manage crises. This, in turn, provides yet another argument in support of the case for replacing this money creation system with a modern, contemporary money creation system.⁴¹

4.2.1.3 Preliminary Conclusions

4.2.1.3.1 Predominant and Problematic Nature of Private Money Creation

Already earlier in history—especially then in the nineteenth century–, it has been held by prominent statesmen and economists that entrusting money creation in capital order to private bankers, rather than to the government, was a mistake that would start endangering societies.⁴²

Since then, however, these observations have largely remained unaddressed, with no significant initiatives ever taken in most capitalist jurisdictions to alter this, because of which, over the past three to four centuries, one of the most important instruments for shaping and directing the economy and, by extension, societies, namely money creation, has remained largely in private hands.

The fact that, in most jurisdictions, central banks have remained competent for the issuance of banknotes and coins (and, in the near future, public, digital currency)—together also known as ‘currency’ or ‘chartalist money’—does not detract from this observation, insofar as even this public money creation serves, above all, the interests of the private banking sector, in particular by ensuring its (exclusive) access to the central banks for the purpose of obtaining credit to enable private banks to meet the exchange requests made by their holders of deposits. At the same time, the latter models of monetary credit to the benefit of the private banking sector are one of the main methods of supplying the economy with chartalist money through the intermediary services of the private banking system.

A further consequence of all this is that the (purportedly public) cash money supply itself has become primarily a function of the (private) book money supply—that is, of the mass of credits brought into the legal system by the collectivity of private banks–, in addition to the preference of the economic system for book money transactions.

However, as scriptural money use (and especially scriptural payment transactions) keeps gaining ever more importance, which in recent times is partly due to government measures to combat black money and criminal money, even this (already quite limited) role of the central banks had to recede even more into the background.

4.2.1.3.2 SDRs as Inspiration for an Alternative Money Creation System

The foregoing requires some nuance.

There also exists—especially then conceptually, to the extent that this technique is little used in practice—a system, conceived under the influence of Keynesian theorizing, of direct, monetary creation of new money by and for the government. Alluded to are the so-called special drawing rights that the IMF can create.

On the IMF’s website, these special drawing rights (or SDRs) are described as an international reserve asset created by the IMF in 1969 to supplement the official reserves of its member countries. The IMF Articles of Agreement provide in this regard that the IMF may, under certain conditions, allocate such SDRs to members participating in the IMF’s SDR system (which currently covers all IMF members).⁴³

A further distinction is made between general and special SDR allocations.

A general allocation of SDRs aims to meet a global need for monetary reserves. One of the largest general SDR allocations of the foreseeable past occurred on August 2, 2021, when the IMF Board of Governors approved a general SDR allocation in the amount of USD 650 billion (about SDR 456 billion) to boost global liquidity in times of COVID-19. This was at the same time the largest SDR allocation in IMF history up to that time.⁴⁴

To date, there has also been one special allocation of SDRs, notably in 2009, aimed at enabling countries that joined the IMF after 1981 to participate in the SDR system on an equitable basis.⁴⁵

The modest role played by the system—notwithstanding its very great potential to help establish, on a global scale, a fair distribution of money—is particularly evident when we contrast this 650 billion USD with the global debt burden of all the countries of the world, on December 7, 2021, amounting to over 81.558 trillion USD.

4.2.2 Our Own Thought Experiment for a New System of Money Creation

4.2.2.1 Justification for our Own Thought Experiment

4.2.2.1.1 General

The attractiveness of the discussed system of SDR allocations not so much concerns the effective use made so far of the possibility granted by the IMF-Articles of agreement, but in the incredible potentiality that this system holds for establishing a new global system of money creation.

Hence, in our previous work,⁴⁶ we already formulated the proposal to make such a system of money creation for the benefit of countries (but also other certain other international and supranational entities) the general norm—rather than using the system purely by way of exceptional interventions only brought to the surface in case of very severe crises.

This proposal is part of a comprehensive set of proposals formulated in our previous work for a new international monetary system that aims to entrust money creation power back to public authority (rather than leaving it in the hands of the private banking sector), and thereby enable countries to return to fulfilling their missions of general interest, while at the same time enabling the private sectors to work towards building truly sustainable economies.

This Sect. 4.2.2 will discuss, in main order, the role that such a new system of money creation could play for the benefit of countries (in addition to certain international or supranational entities). What this system might entail for the private sector will be addressed in Chap. 6 of this book.

4.2.2.1.2 Arguments Pro the Newly Proposed System of Public Money Creation for the Benefit of Countries

In assessing the newly proposed system of money creation for the benefit of states in our earlier work, it is necessary to keep in mind the—intrinsically idiotic—way in which states (and by extension, existing international and supranational institutions) currently finance themselves, an issue that demonstrates pre-eminently the supremacy (but also the destructive power) of (neo)liberal-economic thinking, and of the primacy of the free market over the common good.

As already cited in Chap. 1, under the prevailing capitalist system, taxes—in addition to, more broadly, (from an economic point of view) similar systems of levies imposed by virtue of state authority on the residents of states (such as, for example, social security contributions)—are the primary source of state revenue.

Little need be said here that together these systems constitute a very brutal system of public financing that essentially amounts to an application of the mechanism of expropriation.

Moreover, this is a system that has been used for centuries by the political elites of societies to keep the rest of the population under the thumb.⁴⁷

Although—varying from legal system to legal system—the bases for levying taxes may be conceptually diverse, it appears in the present day that, in most capitalist countries, income from the provision of labor is primarily targeted (to a relatively much greater extent than, for instance, wealth or income derived from capital). Practically, this implies that the tax policy of most capitalist countries is aimed at collecting taxes from the hands of the working population, rather than from the hands of the entrepreneurial sector or other wealthy strata of the population.⁴⁸

Systems of (public) social security financing are unfortunately not much better. What these have in common with taxes is that, in most countries, they are imposed by the government. The main difference between such systems of social security levies and taxes concerns their finality: whereas taxes serve to finance general government operations, including public services financed or organized by the government (such as, in most capitalist countries—to a lesser or greater extent—the military, police, justice and (public) education), social security levies, as a rule, serve to finance specific social security mechanisms. De facto, however, the difference is not always as substantial, to the extent that social security contributions are also, in most countries, primarily linked to income from labor, so that (what remains of) social security systems after decades of neoliberal policies, amount to government-enforced systems of solidarity among the poorer strata of the population.

The fundamental injustice⁴⁹ of the tax and social security mechanisms prevailing in capitalist countries has already been addressed by numerous prominent authors in the past, albeit with little to no impact on public policy in this regard.

However, not only are these mechanisms of public financing through fiscal charges and social security contributions intrinsically inequitable, on top of that, they also turn out to be extremely inefficient (which is presumably due, in large part, to the fact that these systems leave the entrepreneurial sector and the wealthy within societies too unburdened, and are therefore hardly related to the growth of wealth generated by the capitalist economies), as a result of which numerous countries around the world have, in recent decades, increasingly experienced public deficits. Such financing deficits reflect the fact that the taxes and other levies collected in respect of a given working year—which, as mentioned above, in most countries primarily affect the lower and middle classes of the population—do not suffice to bear the public expenditures of the corresponding year, with the result that the government of a country confronted with such deficits must obtain additional financing elsewhere.

The only way out that the capitalist system offers to such countries with financial deficits is—apart from the aforementioned system of SDR allocations by the IMF, which, as said, is in practice extremely rarely used—borrowing (in a broad sense of the word).⁵⁰ Although many intermediary market players may play a role in this process, such borrowing amounts to a situation where, to the extent that countries need to access new money creation to finance their deficits, they do (and can) not turn to the monetary institutions (e.g., their central bank) themselves, but instead have to bow to the private banking sector (and, by extension, the private financial sector), which in turn can turn to the monetary institutions to finance its own deficits.

Moreover, under the current, neoliberal, monetary and public finance policies, this observation has become increasingly fundamental, as evidenced, on the one hand, by the ever-increasing size of the global country debt burden, and, on the other hand, by the fact that a growing number of developed countries have in the recent past had to cope with debt repayment problems themselves (whereas, previously, these problems mainly affected developing countries). The further, neoliberal response to this problem so far has been that the problem is not so much seen as a problem of a system-inherent nature, but that the countries in question are overspending. The further (neoliberal) solution for this problem has therefore, over the past decades, amounted to cutting government spending (in recent years commonly referred to by the term ‘austerity’).

Thus, under neoliberal monetary and public finance policies, the public finances of a growing group of countries have become increasingly problematic over the past few years, with the main symptom that these countries are increasingly burdened with a heavy public debt burden and with the main consequence that, due to the need for continued cuts in public spending, these countries are left with less and less financial leeway to properly fulfill their public interest missions.

With this, neoliberal monetary and public financing even constitutes one of the many methods by which economic neoliberalism seeks to realize its wet dream of dismantling the welfare states.

Obviously, the victim of all this is the ordinary man. Not only is he, as a result, burdened with a heavy tax burden, but in addition he must endure how access to public services and to systems of social security themselves has increasingly become problematic (apart from the various other problems that neoliberal societies manage to place on their populations, as discussed elsewhere in this book).

4.2.2.2 Technical Headlines of Our Earlier Thought Experiment for a New System of Money Creation for the Benefit of Governments

4.2.2.2.1 Theoretical Argumentation

4.2.2.2.1.1 General View of the Newly Proposed Model of Money Creation for the Benefit of Countries

The foregoing inherently raises the question of whether the (capitalist/neoliberal) madness has not lasted long enough, and whether a more rational and efficient system of public financing (and, by extension, a more rational and efficient monetary system) should not be pursued.⁵¹

In one of our previous books, specifically the book ‘Nu het gouden kalf verdronken is’,⁵² an alternative to the prevailing, capitalist systems of money creation—including a new system of financing countries—has already been proposed, notably in the Chaps. 3 and 4 of this book. Further work on this was subsequently done in Chaps. 4 and 5 of our book ‘Towards a New International Monetary Order’.⁵³

One of the tenets of this newly proposed system is to bring all money creation back into public hands by, concretely, entrusting money creation, in its various dimensions, to a central (public) New World Monetary Institute, abbreviated NMWI—which, of course, constitutes but an entirely provisional name.⁵⁴

Indeed, as the many crises (financial and otherwise) that capitalism continually produces, including in the recent past: (1) the severe, financial crisis of 2007–2008; (2) the COVID-19 crisis, and, (3) the recession resulting from the Russian-Ukrainian war of 2022, have learned one thing, it is that the processes of private, money creation occur in an excessively undisciplined and inequitable manner, with one of the symptoms being a quasi-unbridled growth of the total money supply, which is itself one of the reasons why the world seems condemned to continuous economic growth (with all the pernicious consequences that this entails).⁵⁵

The conclusion that can be drawn from this is that the unbridled pursuit of profit that drives the behavior of private market players, including private banking, is completely incompatible with a disciplined expansion of the money supply, which in turn is necessary to redefine economic growth itself in a manner that would respect the capacity of the planet and its people.

Partly for this reason, our previously formulated proposal for a New World Monetary Order (abbreviated as ‘NMWO’),⁵⁶ is based on the idea that private market players would, henceforth, be excluded entirely from participation in the money creation process, a process that would, henceforth, be assigned, in its entirety, to the monetary authority(ies) itself. As regards the latter, reference is made to the newly to-be-created New World Monetary Institute (NMWI) (and its branches within the countries participating in the NMWO).

Of course, so far, this remains a mere proposal, without any serious attempts to put such—or a similar—proposal into practice. The fact that, to date, no such attempts have been made to introduce an international, monetary system based on entirely public money creation (and that hardly any real dialogue can be held on the subject) is, moreover, extremely revealing of the power of (big) capital, in general, and of private banking, in particular.

Nevertheless, we are not (no longer) alone with these proposals; similar ideas can be found in the writings of several other authors. For example, Vilhauser, in general terms, has pointed out the fundamental importance of a “permanent self-reflection of the economic and financial policy of the EU.”⁵⁷

Similar views can be found with Acocella,⁵⁸ Janich,⁵⁹ Harvey,⁶⁰ and Taylor,⁶¹ with the latter author even vaunting a turning point in history “with respect to both the international monetary system and the monetary policy of each country that forms the system.”

Or, as aptly expressed by Ole Bjerg of the Copenhagen Business School, there is “a need to counter the prevailing Seinsvergessenheid in monetary matters and insist on posing the question of the Being of money as a political question.”⁶²

This idea also resonates, increasingly, at the policy level, including on the part of the United Nations General Secretariat, for which reference can be made, for example, to Secretary-General Guterres’ nomination to the UN General Assembly dated September 20, 2022.⁶³

4.2.2.2.1.2 How the Newly Proposed System of Money Creation Could Remedy the Problems Caused by the Prevailing System of Money Creation

Under the prevailing systems of money creation, as explained above (cf. Sect. 4.1.2), it is mainly private (deposit) banks—next to, differing from country to country, comparable financial institutions—that meet society’s credit needs. In doing so, private banks decide (1) who can be considered creditworthy enough to qualify for a credit award (and thus for access to new scriptural money); (2) under what conditions—in particular the terms and modalities of repayment—such credit can actually be taken up (and, therefore: under what conditions private money creation takes place), and (3) for what purposes such credit is granted, ergo access to newly created money can take place.

This system of private money creation has, in addition, evolved into an important source of income for the private banking sector itself, a fact that, especially during the last few centuries—particularly since the dismantling of the medieval, ecclesiastical interest prohibition in Western countries–, has attributed to the deep gaps between and poor and rich that characterize capitalism.⁶⁴

Contrary to what liberal and neoliberal economic thinking (and before in history, the Protestant currents within Christianity) would have us believe, this private money creation system, which is one of the foundations of capitalism, has not led to a proportional increase in the wealth of all humanity. On the contrary, this system allowed for a worldwide increase in the wealth of a small elite, at the expense of, on the one hand, great poverty for (a large part of) the rest of the world’s population, and, on the other hand, a modest level of prosperity for a (small) part of this rest of the world’s population (especially people living in the Western world), who is thereby caught up in a status of contemporary serfdom and is doomed to lead a life that is entirely focused on the provision of labor that serves primarily to make big business ever richer (with this rest of humanity itself, to paraphrase Galbraith, barely having time to do anything else than provide labor).⁶⁵ (Cf. already in Sect. 3.3)

In addition, as explained in more detail in our earlier work,⁶⁶ in recent years all banking discipline, including and especially in the area of private money creation, has been virtually eliminated, a situation that has been exacerbated since the end of the 1980s both by the liberalization and deregulation of credit and finance, and by new financial techniques, such as, for example, the securitization of receivables that has allowed banks to place their loan portfolios in separate vehicles, whose financing is left to third-party savers and/or investors (allowing that the assessment of the solvency of the borrowers has become less important for banks themselves, as the credit risk involved is subsequently passed on to third parties anyway).

As such, the systems of private money creation are primarily a method of unbridled monetary gain for the private banking system (and its underlying shareholders, in addition to its (managerial) staff), in which the associated risks are, without much hesitation, passed on to the rest of society (especially the poorer strata of the population), without any concern for the common good.

Indeed, when things go wrong—as, for example, during the severe financial crisis of 2007–2008–, and the excessively heavy risks that are inherent to the mechanisms created (and deliberately orchestrated) by the private banking sector actually manifest themselves, eventually even in the form of a loss of confidence on the part of the rest of the population, this same banking sector, without much shame, will knock on the door of (national) governments in order—in a manner that other, private market players can only dream of—to be endowed with government support, so that the banking sector does not go under. Such support is then usually amply granted under the argument that the private money creation role of the private banking sector, as well as its role of gathering deposits, may not be endangered.

In such cases, the banking sector will be kept afloat by state aids—that is, with financing derived from taxpayers’ money–, which implies that the population of a country in which such events occur, will suffer at various levels from the private money creation mechanism set up by the private banking sector:

• (1) A first time: through the pricing of privately created money (especially interest on credit).

• (2) A second time: by being saddled, as part of securitization and similar operations, with some of the main risks associated with private money creation (after the banks themselves have first skimmed off the profits).

• (3) A third time: because bailout operations require taxpayer funds (i.e., revenues skimmed off the rest of the economy), to be spent to help maintain this essentially unjust mechanism.

• (4) And even a fourth time due to the interests earned by the private banking system on the ever-increasing (and ever-growing) debt burden of numerous countries, which were formed in the past partly because of such bailout operations.

Some literature has indicated that this inherently ambiguous role of private banking amounts to a privatization of gains and a socialization of losses.⁶⁷

Paraphrasing late Jaap Kruithof,⁶⁸ this raises the question of how much longer humanity wants to cling to the capitalist model of socio-economic organization, including its monetary and financial system, in which all values (have) to give way to the short-term financial interests of a few (more specifically, the class of entrepreneurs and bankers).

Put another way: How much longer will the prevailing monetary and financial system be tolerated, given the fact that is not only intrinsically completely unjust, but in addition, in the short term, regularly disrupts the functioning of the economy and, in the long term, promotes a system in which no respect is shown for the carrying capacity of the Earth and the (general) well-being of the world’s population, also considered from an intergenerational perspective, and which, on the contrary, is mainly aimed at making a limited, financial elite ever richer, at the cost of great poverty (and much suffering) for the rest of the world’s population.

These are just some of the reasons why, in our view, a new monetary order, including a new system of money creation, is urgently needed. We have been advocating this in our work since 2015, the main thrust of which we shall recall in the following sections.

4.2.2.2.1.3 Further Details Regarding the Design of Our Newly Proposed System of Money Creation for the Benefit of Countries

In our proposed new system of money creation, the task of providing countries with access to newly created money would, for the aforementioned reasons, henceforth be entrusted to a new global body that would consist of a single central, global institution, the New World Monetary Institute (or, in short, the NMWI), surrounded by a network of national, central banks of the countries participating in the new monetary arrangement (which together would form a ‘New Global System of Central Banks’, abbreviated ‘NGSCB’). Together, these institutions would become responsible for money creation at various levels, notably:

• (1) Money creation for the benefit of the national governments of the countries participating in the New Monetary World Order (or, abbreviated, NMWO) (as well as the NGSCB itself, in addition to, as appropriate, certain other public, international and supranational bodies).

• (2) Money creation for the benefit of the private sector, with the sublevels being:

  • a. Money creation for the benefit of individuals and families for basic life needs.

  • b. Money creation for the benefit of individuals for starting a professional life.

  • c. Money creation for the benefit of the nonprofit sector.

  • d. Money creation for the benefit of established businesses.

In the context of the NMWO, the NMWI would be the only institution having the power to create new money (albeit with the assistance of the national, central banks of the countries participating in this NMWO, together forming the NMCSB).

This would, henceforth, completely exclude the private banking sector itself from any participation in the money creation processes.

With a view to smoothing the processes of money creation, one could furthermore consider the establishment of two main NMWI departments of money creation, each divided into further sub departments, namely:

• 1. A department for public money creation, for example, consisting of:

  • A sub-department for money creation for the purpose of the NMWI’s own operation (including this of the global NGSCB).

  • A sub-department for money creation to the benefit of the (national) governments of the participating countries.

  • Possibly: a sub-department for money creation for the benefit of certain, other international or supranational, public bodies (such as the United Nations in its various branches, among possible others).

• 2. A money creation department for the benefit of individuals, consisting of, for example:

  • A sub-department for money creation, for the benefit of the private sector, for purposes of general welfare (including the needs of the nonprofit sector);

  • A money creation subdepartment, for the benefit of the private sector, for financing the established business community (in the broad sense of the word).

Each of these departments (and within them: sub-departments) would, as the tentatively proposed designations already make clear, within the NMWO, become responsible for a particular segment of global money creation.

In terms of working method, the operation of these two main departments would be characterized by an important distinction.

The intention would be for the department of public money creation to proceed to new money creation through the (periodic) allocation of allocations to (1) its own departments (including the broader network of national, central banks which, together with the NMWI itself, will form the NGSCB), (2) the national governments of the countries participating in the NMWO, as well as, (3) where appropriate, certain other, international and/or supranational public bodies.

Such allocations would have the further characteristic that, once granted, they are definitively acquired as operating funds by the receiving entities. In other words, they will not be credit—implying that no repayment obligation will come into play –, but, on the contrary, permanently vested (newly created) money.

Such a new system of money creation to the benefit of the public sector, in the broad sense of the word, will obviously have to rely on appropriate methods of controlling the money supply. This will require, among other things, that the countries participating in the NMWO agree, by treaty, upon the parameters for such new money creation for the benefit of the countries based on allocations. These parameters will have to be sufficiently strict and strike the right balance between providing adequate financing to the participating countries and avoiding excessive money creation, with the latter objective also aligned with the development of an economy that is both realistic and sustainable.

Once such allocations are deposited in the accounts of participating countries, the further intention is for the newly created money to be put into circulation to pay for various government expenditures (including the salaries of those in government service). Since a second money circuit will also operate in the form of monetary credits issued to the private sector (cf., furthermore, in Chap. 6.), it will then be possible to further adjust the money supply based on taxes, which, however, will no longer be aimed at financing states—since this will be the role of the aforementioned allocations – but, on the contrary, at preventing excessive wealth accumulation by both enterprises and individuals. The latter will imply that income and wealth above a certain level will continue to be taxed, with the proceeds of these taxes becoming the object of monetary destruction, with the dual purpose of preventing extreme polarization between rich and poor within societies, while also adequately controlling money growth.

In contrast, the operation of the department for money creation for the benefit of the private sector would be based on a different premise. In order to prevent the world’s population from falling into inactivity (which would be counterproductive both economically and socially in general), it is proposed that the department for money creation for the benefit of the private sector should not itself grant—or, at least, not by way of a general rule—non-refundable allocations to private persons, but should proceed to money creation on the basis of the granting of various types of credits that will have to be repaid in accordance with principles (and regulations) to be further determined.⁶⁹

These methods of money creation for the benefit of individuals will be discussed further in the Chap. 6.

4.2.2.2.2 Societal Benefits of the Newly Proposed System of Money Creation for the Benefit of Countries

In what precedes, it has been explained that, within the proposed NMWO, the provisioning of countries with new money would henceforth be accomplished through so-called allocations.

Such a system would, in other words, amount to a drastic extrapolation of the current IMF system of SDR allocations (not necessarily retaining this designation), which would thereby become the main, if not only, source of government funding on a global scale.

It needs little further argument that such an approach would entail a profound change in the prevailing capitalist monetary order, with as most important, possible benefits and consequences for the operation of government:

• (1) Money creation would return to government hands, at an international level.

• (2) Reinstating public authority with the exclusive power to create new money would, moreover, enable a more planned economy than has ever been possible under the prevailing capitalist monetary systems. This would also make it easier to establish sustainable (and scaled down) economies.

• (3) States will no longer have to be debt and tax states.

Instead, states will obtain their financial resources from the annual allocations of the international monetary institution (i.e., the abovementioned NMWI) empowered to do so. This feature of the newly proposed monetary system alone will enable states to devote themselves (again) entirely to the pursuit of the common good, rather than merely creating an environment in which free markets can flourish.

• (4) The monetary system itself will become one of the basic instruments to serve the general interest, rather than, primarily, the interests of the classes of bankers and entrepreneurs. This will involve both public services and social security systems, which, in addition, will be able to be set up equally in all participating countries.

  Public services may include such things as education, justice, but also, for example, access to culture.

  The social security systems financed through the allocations will in turn be able to lead, worldwide, to completely free and equal access to things such as youth and elderly care, medical care, replacement income in case of illness, a universal basic income... All these services will, moreover, be able to be made available to all their users completely free of charge (to the extent that the allocation model itself will fully provide for their financing).

We shall return to this in more detail in Chap. 5 of this book.

• (5) The fact that monetary policy would, once again, become a central policy instrument of government will (at least) in an initial phase (of implementation of such a new money creation system for the benefit of countries) prove vital in addressing the main societal problems caused by capitalism, that have remained unsolved for decades⁷⁰ (e.g., climate change; the lack of global management of the planet’s natural resources; poverty, and, generally speaking, unjust and unfair societies).

It is obvious that such a new system of money creation for the benefit of countries (in addition to certain supranational and/or international institutions) will have to be international in character and include all the countries of the world—or at least as many as possible. Its ultimate design will be to ensure the fundability of all countries in terms of their missions of general interest.

The foregoing obviously implies that this new money creation system will have to include developing countries, so that the long-standing demand for a just international economic order on their behalf, which has been going on for decades, will finally be met.⁷¹

4.3 Proof of Response to the Monetary Financing Taboo

In many jurisdictions, the introduction of our proposed system of money creation for the benefit of countries (and of other, international, and supranational authorities) will involve abandoning objections to so-called monetary financing.⁷²

In the context of the European Union, this prohibition of monetary financing, is contained in the Article 123 of the Consolidated Version of the Treaty on the Functioning of the European Union,⁷³ the text of which reads as follows:

• 1. Overdraft facilities or any other type of credit facility with the European Central Bank or with the central banks of the Member States (hereinafter referred to as ‘national central banks’) in favour of Union institutions, bodies, offices or agencies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the European Central Bank or national central banks of debt instruments.

• 2. Paragraph 1 shall not apply to publicly owned credit institutions which, in the context of the supply of reserves by central banks, shall be given the same treatment by national central banks and the European Central Bank as private credit institutions.

However, regarding the financing of states (and other public entities) at the level of the EU (but also, for example, of the United States of America, where a similar prohibition of monetary financing is in play), there is, in practice, an ever-increasing economic need to resort to methods of (indirect) financing of states through efforts on the part of central banks.

A prime example of this are the systems of quantitative easing (QE), to which several central banks, including the ECB and the U.S. Federal Reserve, have begun to resort in the wake of the 2007–2008 financial crisis (and which involve purchasing, by the central banks concerned, financial instruments issued by governments—but also by private enterprises –, making the techniques amount to indirect forms of government and corporate financing by the central banks in question).

This raises the question of whether such recourse to what could be called, at least as far as the financing of states is concerned, indirect monetary financing, would not be better replaced by a system of direct monetary financing.

In this regard, reference can be made to Stiglitz’s assessment that the ECB’s alleged compliance with the prohibition on monetary financing during recent years has become a charade anyway⁷⁴:

While, as in Europe, there is a charade that the central bank does not lend money directly to the government, it is clear that that is precisely what has been happening.

From this, there are arguments that the prohibition of monetary financing could indeed be abandoned in favor of the establishment of the system of money creation, proposed above, for the benefit of states (in addition to certain other supranational and international institutions) on the basis of allocations, which would be more in line both with societal needs (in particular, the need to restore the ability of states to serve the common good), and economic realities (in particular, the fact that several states have come to rely on financial resources provided by central banks anyway).

Such an approach would then, of course, require that other safeguards be built into the NMWO to ensure the policy objectives that are residentially cited in defense of the prohibition on monetary financing.

This will essentially amount to the insertion of systems to protect the stability of the monetary system by:

• (1) The insertion of mechanisms to ensure price stability, in addition to,

• (2) Ensuring that the proposed method of money creation for the benefit of governments will be done in a sufficiently independent manner.

4.4 Mechanisms to Protect Monetary Stability when Using an Allocation Model of Money Creation for the Benefit of Countries (and Other Governments)

The observations formulated at the end of Sect. 4.3 lead us to the question of the outlook of the mechanisms that will be necessary to ensure the security and success of the proposed system of money creation for the benefit of countries (and certain other supranational and international institutions).

This concerns the following policy questions:

• (1) How can it be ensured that the money creation that would take place in the framework of the newly proposed system of direct money creation by the NMWI, for the benefit of countries/governments (and certain other international and supranational institutions) will remain within sufficiently reasonable limits that correspond to the needs of the underlying economy itself?

and,

• (2) How can it be ensured that such a system of direct money creation by a central monetary institution (such as the proposed NMWI) will be sufficiently independent from the governments of the participating countries?

The first of these questions concerns the parameters for measuring the money supply(s) circulating in a given economy.

While money supply measurement was still a central concern of economic policy in the more distant past, this hardly seems to be the case in the last two (or even more) decades. Instead, under the rule of neoliberal monetarism, both public and private debt is piling up around the world, with private money creation by private banks (and therefore public and private debt) hardly seeming to be contained by central banks, or other monetary institutions, at all.

In the new money creation system proposed above, this monetary policy issue will, once again, become of vital importance, in line with the goal of establishing a sustainable economic model, that would no longer be driven by economic growth as an end in itself (and would therefore no longer be characterized by production for the sake of production and consumption for the sake of consumption), but by the goal of satisfying, in a fair manner, everyone’s basic life needs.

As regards the models of money creation for the benefit of the participating countries, the foregoing will imply that there will have to be an efficient system for calculating the needs of the countries by means of detailed budgets, and that the central monetary institution (to be newly established) will have to decide, on the basis of these budgets, on the size of the annual allocations that will be disbursed to each of the participating countries.

The effective implementation of this proposed NMWO will, furthermore, require a proper balance between the role of technocratic expertise needed to determine the financial needs of states in advance, and the way democratic societies should be governed. It can already be pointed out that, for example, the E(M)U already has considerable expertise in this area (cf. the already existing debt and expenditure monitoring systems of EU member states). The same is, moreover, true about the IMF (e.g., in the context of the multitude of monetary assistance systems the IMF has developed over the years⁷⁵).

In the context of the newly proposed system of money creation (i.e., the NMWO), this dependence on technocratic expertise is expected to remain the same.

The answer to the dilemma how to reconcile this dependence on technocratic expertise with the principles of democracy, will have to be found in clear conventional agreements on the functioning of the newly proposed system of money creation in general, and of the annual allocation model in particular.

Regarding the content for which annual allocations will be granted to participating countries, the treaty establishing the new monetary model should thereto be based on a sufficiently detailed understanding of the tasks of general interest for which participating countries will receive their annual allocations. Chapter 5 below will already outline some ideas in this regard.

The additional concern that the final decisions on allocations should be sufficiently democratic in nature could be addressed by relying on an elaborated procedure for making the actual allocation decisions, where the idea could be to involve (representatives) from participating countries in panels deciding on each other’s allocations. To the extent that this has already been addressed in detail in our previous work, it suffices here to refer to it.⁷⁶

4.5 Conclusions

As already argued in our previous work,⁷⁷ the conception of a new model of money creation is a viable one.

Where already in our previous work, we have argued for the need for a drastic change in the money creation system—and by extension the monetary system–, this plea is being increasingly joined by certain policy bodies, including at the level of the United Nations.

For instance, in a January 21, 2022, lecture addressed to the United Nations General Assembly by Secretary General Guterres, the prevailing capitalist, monetary and financial system was strongly criticized, for reasons similar as the ones explained in our own previous work.

According to Guterres, the COVID-19 pandemic revealed the failure of the global financial system, with Guterres speaking out in similar terms as we ourselves have been doing in our writings since 2015⁷⁸:

Let’s tell it like it is: the global financial system is morally bankrupt. It favors the rich and punishes the poor. We need a new architecture that delivers for all, and closes the gap between the financial and the real economies once and for all.

According to Guterres, a monetary system should provide stability by supporting economies during financial shocks, such as a pandemic, which is not the case with the prevailing capitalist money creation model and monetary system. As a result, poorer countries experience their slowest growth in a generation, while middle-income countries receive no debt relief, despite increasing poverty. A further consequence is that it is the world’s poor who pay a high price for this failing monetary and financial system, in the form of lost health care, education, and jobs.⁷⁹

The new model proposed in our earlier work—the outlines of which we have readdressed in this Chap. 4—would basically meet these concerns by allowing the power to create new money to be (re)vested in government hands (and no longer rest in chief with a limited club of private market players).

In the following Chap. 5, we shall examine in more detail the extent to which such a newly proposed money creation system would allow countries to regain sufficient financial leeway to properly perform their public interest tasks.