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Liquid Money - The Final Thing

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Liquid Money - The Final Thing

Federal Reserve and Central Bank Accounts for Everyone

Authored by Michael Schemmann

We have been bailing out banks by the tens of trillions of dollars, pounds and euros. The privilege of banking with the banks has always been a burden. We must all be allowed to maintain an account at the Federal Reserve or our national Central Bank, just like the banks do.

We are bailing out the banks with taxpayers' or central bank money in order to recapitalize them. This is wrong and based on an economist's misconception of accounting and banking. Banks' activities take place on their liabilities' side; liquid assets are needed to keep the depositors safe, not capital which is on the wrong side of the balance sheet. Misconceptions by economists who are not bankers abound, in particular at the Basel Committee for Banking Supervision.

To bail out the depositor is so simple that the mind is repelled: Allow everyone to maintain a deposit account at the Federal Reserve or Central Bank! The private commercial banks will cease to create quasi money, and everything else will fall into place as it should in the capitalized private sector. No need for the taxpayers' money or complex regulations.

According to my practical experience as a banker, and my thought experiments as an academic person, the solution to the present financial crises is "so simple that the mind is repelled," using Galbraith's words characterizing the process by which bankers create money.

"Anyone shall be allowed to open and maintain an (internet) bank deposit account at the nation's note-issuing central bank. No frills, no overdrafts, no credit cards, only a simple debit card that works at any ATM around the world to make payments and to withdraw that legal tender, at a reasonable fee, of course."

There are no technical challenges in this electronic age to open 800 million bank accounts in the United States, Canada, and throughout the European Union, rather enormous benefits of laissez-faire in that all of the rest of the banking problems that plague us today will look after themselves. The benefits are

1. public immunity to private bank insolvencies,

2. redundancy of deposit insurance,

3. avoidance of ring-fencing of retail banking from investment banking (redundant as deposits of the general public are completely safe and redeemable on demand at the central bank either in cash or by transfer, ie payment),

4. no need for capital adequacy requirements (the capital misconception),

5. avoidance of loss of value of money through the arbitrary increase of the private banks' quasi money supply resulting economic booms and busts, and

6. redundancy of the sheer volumes of regulatory detail,

while the losses, if any - and why should there be any losses as no one has done anything wrong by not having a central bank account - can be left safely where they have fallen.

Publication Date:
1478312238 / 9781478312239
Page Count:
Binding Type:
US Trade Paper
Trim Size:
6" x 9"
Black and White
Related Categories:
Business & Economics / Banks & Banking

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