Positive Money 's Sovereign Money Proposal : Could It Work? Essay
Under the sovereign money proposal proposed by the forward thinking group positive money, the power to create money would be taken away from the banks and given to the central banks. Banks would therefore serve two purposes; a transaction function with which people stored money until they needed to spend and this money would be secure, the other a lending and savings function with the banks acting as a middleman between savers and borrowers. But could this system effectively work if brought into to somewhere like the UK and what would be the advantages and disadvantages of bringing in such a system.
In the current system in the UK the vast majority of money (97% of it (1) ) in circulation and used is created by retail banks with very little created by the bank of the England the central bank. The way in which they create new money is through deposits which appear within someone’s bank account when that person takes out a loan ,the deposits are credited to their bank account and this is the creation of new money. However when the person repays the loan then the money disappears from the economy as the money was never physical and is now destroyed.
Positive money’s sovereign money proposal looks to take away the power of these commercial or retail banks to create money and give this power back to the central bank where all new money is created by the state. The way in which this would work would be to change the…