Does your MP know where money comes from?

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:

  1. Around 97% of money in the UK con­sists of elec­tron­ic bank depos­its in people’s bank accounts
  2. That banks cre­ate these depos­its when they make loans
  3. 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.

Yours sin­cerely,

Chris Wells


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.

Photo: Queue for the Bank of Eng­land Open House by Loz Pycock, used under CC BY-SA 2.0 / Cropped from ori­gin­al with expos­ure adjust­ment, sharpen­ing and JPEG arti­fact reduc­tion