Wednesday, August 10, 2016

JP Koning — Central banks deposits for you and me

Whatever the case, don't be fooled by the technological terminology; if the Bank were to open itself up, this would be more of a returning to the fold than a bold new future.
Interesting post in light of discussions in the comments here at MNE. Personal accounts at the Bank of England are historical rather than unusual.

Moneyness
Central banks deposits for you and me
JP Koning

6 comments:

Andrew Anderson said...

Not mentioned is the alternative payment system to the one that must work through the banks would exist and thus free the economy from being hostage to the banks.

And so much for the idea being "balmy", Yves Smith.

Nice article and thanks for posting it Tom. I might use it to try to bring Mish Shedlock into the fold, given the opportunity.

Ralph Musgrave said...

Andrew,

I'm pretty sure Mish alreadyfavors full reserve banking. Try Googling his name and "full reserve".

Ignacio said...

Andrew, as I told you so, this had already been the case, and it did change nothing (in your language: were things more 'just' or 'fair' or 'ethical' back then? was behaviour significantly different than now? answer to both questions: no).

Yes, yes, I know, you have to remove insurance from private banks on top then it magically would do something because it will magically change behaviour. Well, no, that's not how it works: welcome to the XVIII-XIX century, on the first crisis the public will demand bail outs and the politicians and governments will give them. And then you come to the current arrangement...

Sort of establishing some sort of full reserve you won't change the underlying mechanics. And then that's an other con, as Neil Wilson has explained.

But hey, I more than welcome accounts at the CB and have been supportive of them over here, don't expect them to do well though unless they pay above their private counterparts. Which they won't, because "markets" (and political influence). So then again? How are you going to fix all this problems without real political action instead of crackpot monetary ideas? Stop being lazy looking for magical fixes.

Matt Franko said...

"the Federal Reserve's overnight reverse repurchase facility, which allows money market mutual funds to hold overnight balances at the Fed. "
There you go AA just do that... Get with a MMMF that does this with checking and a debit card feature and then you can "get into heaven" when you die and the rest of us I guess can "go to hell" , just bring the debit card with you to show St Peter at the pearly gate I would think that would be proof enough....

Andrew Anderson said...

I'm pretty sure Mish already favors full reserve banking. Ralph

Full reserve banking would be difficult to enforce while the direct use of reserves (more accurately, fiat account balances at the central bank in the case of non-banks) by the population requires no oversight of the banks since the banks would not be handling those accounts - the central bank would.

Andrew Anderson said...

Andrew, as I told you so, this had already been the case, and it did change nothing (in your language: were things more 'just' or 'fair' or 'ethical' back then? was behaviour significantly different than now? answer to both questions: no). Ignacio

How is a central bank with a single branch location and which charged fees on "non-profitable" accounts in competition with government-privileged banks* any sort of apt comparison to what we should have - a convenient, FREE** fiat accounting and transaction service in completion with 100% private banks? it isn't.

Yes, yes, I know, you have to remove insurance from private banks on top then it magically would do something because it will magically change behaviour. Well, no, that's not how it works: welcome to the XVIII-XIX century, on the first crisis the public will demand bail outs and the politicians and governments will give them. And then you come to the current arrangement... Ignacio

1) Default accounts for all adult citizens should be provided at the central bank.

2) Unless otherwise directed by a citizen, all future disbursements by the monetary sovereign to individual citizens should be to those accounts.

3) The gradual, well-publicized abolition of government-provided deposit insurance should require large amounts of new fiat to be distributed to those accounts as well.

4) Every effort should be made to make those accounts fully as convenient as banks wrt transactions, eg. debit cards provided.

5) No doubt there might be future calls for bailouts but they would fall on far less sympathetic ears since the banks would no longer hold the economy hostage. But if a bailout was deemed wise, it could be ethically accomplished via equal fiat distributions to all adult citizens to prevent suffering and provide liquidity (at market prices) while the wreckage was cleared.

Sort of establishing some sort of full reserve you won't change the underlying mechanics.

Wrong since any future provision of reserves to the banks would NOT come from the central bank nor from the monetary sovereign by default. Instead they would have to be bought or borrowed from citizens, businesses, foreigners, etc.

And then that's an other con, as Neil Wilson has explained.

Please elaborate. Neil hasn't said much lately*** that I consider worthy of remembering.


But hey, I more than welcome accounts at the CB and have been supportive of them over here, don't expect them to do well though unless they pay above their private counterparts. Which they won't, because "markets" (and political influence).

Central bank accounts shouldn't pay ANY positive interest since otherwise it's welfare proportional to account balance since the accounts are risk-free.

So then again? How are you going to fix all this problems without real political action instead of crackpot monetary ideas? Stop being lazy looking for magical fixes.

Magical? Yes, ethics and honesty can produce miraculous results because those that practice them please the Creator.


*E.g. Positive interest paying sovereign debt allows banks to share their corporate welfare with their depositors while a central bank should not pay interest on its deposits/liabilities since that would constitute welfare proportional to deposit size.

** As a normally expected service of a monetarily sovereign government to all adult citizens. But this service should neither pay interest nor make loans since both would violate equal protection under the law in favor of the rich. Such an ethical service would be very simple and inexpensive to implement.

***Not to say I haven't learned in the past from Neil (and many others) but apparently he has little left to teach me.