Devolving money creation

There is an interesting programme from Renegade Inc (27 minutes) with the South African, Brett Scott who is ‘an author and financial activist’.

I suggest that he has various insights:

First that the cashless society is definitely not for the benefit of individuals but rather for corporations and banks.

Second the ‘war on cash’ is actually an institutional desire. If it ends up as normal it will give private banking even more power.

Indeed the so called ‘fintech’ disruptive companies are, a miscategorisation as they are actually ‘disrupting’ their sector by using the same methods in a very slightly different way and thus reinforcing finance itself.

Even when dressed up differently, consolidating financial power and preserving financial extraction is still the name of the game.

Of course finance has long been close to government – peddling the idea that without their ‘skills’ government would be impossible and this is promoted by their long standing lobbying

Thus even when the banks have the power to create money they understand that when government is handing it out, the important thing is to be at the front of the queue – something they achieved with both Quantitative Easing and with Coronavirus Loans.

Brett Scott also thought that the monopoly issuance of money should be addressed.

That set me thinking. Why is money creation in nations always centralised? Presumably because it keeps the power centralised too. The finance sector, with their government sanctioned power to create money keeps government close by giving jobs to politicians and ex politicians.

But shouldn’t other people be similarly licensed to create money?

What about local councils? They have the power to collect tax so why couldn’t they spend money into existence just like central government?

The regressive and inflexible council tax would have to be reformed – probably in favour of a Land Value Tax and perhaps there should be regional committees to check on inflation.

But the more and more I think of it, allowing local government to create money as it spends would properly devolve power to the locality.

What’s is not to like?


  1. Schofield -

    In the United States there’s both local and state sales tax (VAT) they’re amalgamated. The rates can vary from state to state but seem to hover in the 6% to 7% range. The Federal government doesn’t operate a sales tax. Local authorities and states are free to issue bonds too without the centralised agreement of federal government. These arrangements make local authorities and states more resilient in the face of an economic downturn. As far as I’m aware there is no federal legislation to stop any state setting up a state owned bank but the only one in the United States is the North Dakota State Bank.

    Obviously it becomes possible with a state owned bank to lend at a low rate for rented housing provision when interest rates are high. The problem is, however, attracting reserves for payment settlement purposes with saving based accounts that are not competitive on interest rates.

    1. Peter May -

      I’m not quite sure their purpose but the US has the Federal Reserve banks
      Whereas the Bank of North Dakota seems just to be a state owned local regional bank?
      Similar – ish to the South West Mutual

      But my idea was rather that local councils themselves should be able to spend money into existence!

      1. Schofield -

        The head Federal Reserve or central bank is based in New York the other Federal Reserve banks are regional extensions of the head office they help out gathering data and I think are involved in payment settlement.

        The main problem with local authorities creating their own money from thin air like the central bank is it getting out of the central bank’s control. The central bank is able to impose lending restrictions on the licenced commercial banks so I assume would be tempted to impose fiscal collars on the local authorities.

        Your idea of decentralising is a good one given what I’ve said above about resilience. Just not sure exactly how you’d do it and sell the idea.

  2. Peter May -

    I’m of the view that even discussing the possibility of local authority money creation is an advance because it shows that money creation doesn’t have to be central – I’d probably give the BoE the job of regional inflation supervision. But I’d suggest they could advise only!

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