Is bitcoin really Positive Money?
Wednesday 26 August 2015
The Positive Money campaign is gaining traction - but they’ve taken a crucial wrong turn.
I’ve been getting into the Positive Money campaign recently. These guys are based in the UK and make some great points about the way we ‘do’ money, highlighting the flaws in the current system. They will no doubt garner a certain degree of interest and agreement from the crypto community.
A lot of us got into bitcoin and the crypto scene due to dissatisfaction with the fiat money system and the desire for a viable alternative that wasn’t used as a tool by which wealth was essentially extracted from the poorer among us and redistributed to the already rich.
Money doesn't grow on trees, and Central Banks don't have much to do with creating it either
The big problem, as the Positive Money lot see it, is that most money (over 97%) is not created by the Central Bank, as a lot of people believe, but by private banks. When banks make a loan for a mortgage or other purchase, that money is effectively conjured up from nothing. It doesn’t reflect the ‘real’ deposits held by the bank - it’s just figures on an electronic balance sheet. That newly-created money is then used to buy houses and other assets, inflating prices, driving inequality and debt. And, in the process, it brought about the Global Financial Crisis, since the banks didn’t really need to know whether they were lending wisely; they chased short-term profits, storing up the mother of all hangovers, but the financial sector was considered so important that taxpayers’ money was used to bail them out for their failures.
Positive Money’s three proposals to fix the problem and start addressing some of our major financial, environmental and social issues are as follows:
- Take the power to create money away from the banks and return it to a democratic, accountable and transparent process. This would be achieved through a new committee, accountable to Parliament and sheltered from vested interests, tasked with whether and when to create new money.
- Create money free of debt. Currently almost all money also represents debt, since it’s ‘on loan’ from the banks. Instead, the government could create money and spend it into the economy, not lend it into the economy.
- Ensure money comes into the real economy before it reaches financial markets - for example through public spending and job creation.
A lot of bitcoiners would agree that money is too important to be entrusted to the banks; that a debt-based economy is inherently unstable, prone to boom and bust; and that new money being used to drive institutional financial speculation rather than put into the real economy represents an injustice.
What they would not agree with is that a centralised organisation of any kind - especially a government-linked one - should be tasked with money creation. In bitcoin, money creation is the job of miners, who also guard the security of the network. Its pace is also governed by an algorithm, not by opinion on whether it is the right thing for the economy. It is trustless.
There are certainly both pros and cons to that approach, and the full implications in terms of the resulting economy based on that money supply remain to be seen. I like a lot of what the Positive Money team are doing in terms of raising awareness of how we view and use money, and particularly the moral hazard inherent in the way it is currently created by banks. But I’m not sure I trust a quango to do the job right.
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