Positive Money have a new campaign, encouraging us to write to our MP asking if they understand how our monetary system works. Here’s the email I sent Emily Thornberry.
I have been a fan of the Positive Money campaign since they started in 2010 and recently received an email from them suggesting I write to my MP. Since I haven’t written to Emily Thornberry in some time I decided I’d get in touch.
Here’s the email I sent her and I will post a follow-up once she gets back to me.
Dear Emily Thornberry,
RE: The UK’s Money System & Austerity Measures
I hope you are well. The subject of this message is an issue that is very important to me. I believe it is of the utmost importance and has an impact on every single aspect of our economy.
I was surprised to recently see the startling results of a poll by Dods Monitoring showing that only a minority of our MPs could correctly explain who is responsible for the actual creation of money in the UK’s economy.
I am concerned that nearly three quarters of MPs believe that only the government is allowed to create money, when in fact it is banks that create the majority of money in the UK. This has grave implications for our ongoing economic crisis, especially the current house price bubble. And it puts us all at risk of another debt-fuelled economic crisis.
The government creates coins and notes, but these make up just 3% of money in the economy. The other 97% of money exists as bank deposits — the electronic numbers in our bank accounts. In the poll, over 71% of MPs believed that only the government could create this electronic money.
In reality, it is created by commercial banks – banks create money, through some simple accounting, when they make loans. However, when people repay loans, the reverse process happens and money disappears from the economy.
Only 12% of MPs in the poll correctly gave this answer.
The Bank of England explains this in their March 2014 Quarterly Bulletin:
“[The] majority of money in the modern economy is created by commercial banks making loans… 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… Just as taking out a new loan creates money, the repayment of bank loans destroys money.
Please would you let me know whether you were aware that:
- Around 97% of money in the UK consists of electronic bank deposits in people’s bank accounts
- That banks create these deposits when they make loans
- That when people repay loans, the money is destroyed and disappears from the economy
I was prompted to write to you by the campaigning group, Positive Money but I am writing because I genuinely think this cause is really worth looking into. I realise monetary reform is hardly the sort of headline-grabbing topic that gets the electorate’s hearts pumping. But changing the way the money system works would have a profound impact on the way our economy works. And changing the way our economy works would enable many of the policy aims of the Labour Party to be achieved.
I would strongly encourage you to either take 10 minutes to glance over Positive Money’s website or, if you prefer, the Bank of England itself recently admitted how money is created.
I would be fascinated to hear your views on this matter as well as to know what your answers were to the three questions above.
If you have a moment, I humbly suggest you might also want to write to your MP in the area you live in. This really is a vital issue and, once you understand it properly you will begin to see how the world works through a new lens. Here’s their Email Your MP campaign page.