The Need for Monetary Reform



While The American Monetary Institute is responsible for its present form, the Act is based on Aristotelian monetary concepts in existence since at least the 4th century BC and employed successfully in a variety of monetary systems since then, ranging from democratic Athens to republican Rome. It is not merely a theory – its main elements have a long history of successful implementation in major societies around the world, including the American Colonies and the United States. These concepts enabled us to first establish the U.S. and then to maintain it as one nation.

The following brief summary: The Need for Monetary Reform serves as a preface to the American Monetary Act. (It was written before the banks brought down the world economy!)

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A steady state economy


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A steady state economy is an economy with stable or mildly fluctuating size. The term typically refers to a national economy, but it can also be applied to a local, regional, or global economy. An economy can reach a steady state after a period of growth or after a period of downsizing or degrowth. To be sustainable, a steady state economy may not exceed ecological limits.

Watch a short film: Enough is Enough

or read more: Center for the Advancement of the Steady State Economy



The same banks that caused the financial crisis currently have the power to create 97% of the UK’s money. They’ve used this power recklessly, putting most of the money they create into property bubbles and financial markets. And now they’re back to their old ways.
We need a change. The power to create money should only be used in the public interest, in a democratic, transparent and accountable way. The 1844 law that makes it illegal for anyone other than the Bank of England to create paper money should be updated to apply to the electronic money currently created by banks.
When new money is created, it should be used to fund vital public services or provide finance to businesses, creating jobs where they’re needed, instead of being used to push up house prices or speculate on the financial markets.

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An economic reform proposal



Having in mind that:

i. Despite of the increasing number of national and international financial institutions, the increasing amount of the available statistical data and computing power, economic crises are not predicted by governments, central banks and the academic community.
ii. The effectiveness of fiscal and monetary policy tools in an economy decreases over time. Just like in the human body, over time the same dose of a medicine or a drug has a diminishing effect.
iii. The complexity of the economic environment (of the theoretical models, of the institutions, of the financial products and of the attempts to regulate them) has led to an increasing level of national and private debt in almost every country and in increasing the concentration of wealth of the top 1% of the population.
iv. To simplify economic environment would be of great value to the society and the policy maker.

It is proposed that a sovereign currency*, public debt repayment with sovereign currency** and full reserve banking***, followed by balanced budgets in the public sector would be beneficial to the Greek, the European and the world economy.


REGULATION (EU) No 472/2013


The debt that Greece is expected to pay is equivalent to 175% of annual national wealth, and is an intolerable burden for the Greek people.

What would happen if a greek government decided to apply, to the letter, Article 7 of a regulation adopted by the European Union in May 2013 “on the strengthening of economic and budgetary surveillance of Member States in the euro area experiencing or threatened with serious difficulties with respect to their financial stability”, concerning countries subject to a structural adjustment plan, including in particular Greece, Portugal and Cyprus.

Paragraph 9 of Article 7 maintains that States subject to structural adjustment should carry out a complete order of public debt in order to explain why indebtedness increased so sharply and to identify any irregularities. Here is the text in full: “A Member State subject to a macroeconomic adjustment programme shall carry out a comprehensive audit of its public finances in order, inter alia, to assess the reasons that led to the building up of excessive levels of debt as well as to track any possible irregularity”.

REGULATION (EU) No 472/2013

On Central Banks


In order to become effective, central banks must be enabled to be true masters of the money system. They need to gain full control of the money by way of monetary quantity policy. No quantity policy is possible, however, as long as the banking industry dominates the monetary system and determines the entire stock of money, while money and capital markets inherently fail to reach some ‘equilibrium’ and self-limitation. In conclusion, banks must stop acting as monetary quasi-authorities and become purely financial institutions, meaning that the banking industry must be stripped of its monetary power to create and delete money-on-account by creating or deleting primary credit. Banks ought to be free lending and investment enterprises, but just money intermediaries in this without the illegitimate privilege of conducting business on the basis of self-created money.

In the nineteenth century, and for much the same reasons, banks were stripped of their power to issue private banknotes. The monopoly of banknotes was given over to the central banks, many of which were set up in the process. Now the time is ripe for the same to be applied to money-on-account. Bank money should be phased out and central-bank money in public circulation in the form of money-on-account and e-cash phased in, resulting in a sovereign money system with full control of the stock of money. In this way, a state’s, or a community of states’, monetary prerogatives of the currency (unit of account), the money (means of payments) and the seigniorage (gain from creating money) would be fully completed. Independent public central banks – acting on a well-defined legal mandate, but not taking directives from the government – are the obvious candidates for being entrusted with the functions related to the monetary prerogatives.

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What is Full Reserve Banking?


The definition of full reserve banking can be a source of much confusion and consternation. The confusion revolves around the definition of “reserve ratio”. Normally, the reserve ratio is defined approximately as follows:

Reserve ratio  =

The money held by the bank

The money deposited in the bank by its customers

It is easy to see that the higher the reserve ratio, the smaller the risk of a bank run. With a ratio of 100% this means that even if every single customer demanded to take out their money, the bank will have it all available. This is clearly a very safe form of banking, but as described so far, the bank would simply be acting like a safe deposit box. It would not be able to make any loans. It appears that banks can not act as financial intermediaries between savers and borrowers. Indeed there are some economists that have pronounced that full reserve banking is useless for precisely this reason… but they are mistaken and here’s why:In the context of a full reserve banking system, we need to be slightly more precise about the meaning of the reserve ratio.

Reserve ratio  =

The money held by the bank

The money that the customers currently 

have the legal right to withdraw

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The Chicago Plan Revisited



IMF Working Paper, Research Department

Prepared by Jaromir Benes and Michael Kumhof, August 2012


At the height of the Great Depression a number of leading U.S. economists advanced a proposal for monetary reform that became known as the Chicago Plan. It envisaged the separation of the monetary and credit functions of the banking system, by requiring 100% reserve backing for deposits. Irving Fisher (1936) claimed the following advantages for this plan:

(1) Much better control of a major source of business cycle fluctuations, sudden increases and contractions of bank credit and of the supply of bank-created money.
(2) Complete elimination of bank runs.
(3) Dramatic reduction of the (net) public debt.
(4) Dramatic reduction of private debt, as money creation no longer requires simultaneous debt creation.

We study these claims by embedding a comprehensive and carefully calibrated model of the banking system in a DSGE model of the U.S. economy. We find support for all four of Fisher’s claims. Furthermore, output gains approach 10%, and steady state inflation can drop to zero without posing problems for the conduct of monetary policy.

The Chicago Plan Revisited

Money Creation in the UK



Right now most of the money in our economy is created by banks. Banks create up to 97% of money, in the form of the numbers in your bank account, when they make loans. This means that they effectively decide a) how much money there is in the economy, and b) where that money goes.

The control of the creation of money, in the hands of banks, has contributed to the problems of:

We believe the power to create money must be removed from the banks that caused the financial crisis and returned to a democratic, transparent and accountable body. New money must only be created and used to benefit the public and society as a whole, rather than just financial sector.

We have detailed and workable proposals that would allow this to happen. Even the Financial Times has written about the need to prevent banks from being able to create money.

Money Creation in the UK


More than 97% of the money used by people and businesses in the UK is created by commer- cial, or ‘high-street’, banks. Less than 3% is created by the state or central banks (such as the Bank of England). A similar situation exists in most countries around the world.

Banks create new money, in the form of the numbers (deposits) that appear in bank accounts, through the accounting process used when they make loans. In the words of the Bank of England:

“When a bank makes a loan, for example to someone taking out a mortgage to buy a house, it does not typically do so by giving them thousands of pounds worth of banknotes. Instead, it credits their bank account with a bank deposit of the size of the mortgage. At that moment, new money is created.” (Bank of England Quarterly Bulletin, 2014 Q1)

Conversely, when people use those deposits to repay loans, the process is reversed and money effectively disappears from the economy. As the Bank of England describes:

“Just as taking out a loan creates new money, the repayment of bank loans destroys money. … Banks making loans and consumers repaying them are the most significant ways in which bank deposits are created and destroyed in the modern economy.” (Bank of England Quarterly Bulletin, 2014 Q1)

Money Creation