Thursday, May 11, 2017

Norbert Häring — Bundesbank corrects textbook mistakes on money creation, rejects 100%-money

In the April-edition of their monthly report, the Bundesbank has belatedly joined the Bank of England in explicitly stating that the treatment of banks and money creation in most textbooks is wrong: banks are not intermediaries; they create money ex-nihilo. This helps the Bundesbank to reject criticism that central banks are currently “printing” too much money. At the same time, the Bundesbank rejects the proposal of 100%-money, i.e. bank deposits fully backed by central bank money.…
Woo hoo!

Real-World Economics Review Blog
Bundesbank corrects textbook mistakes on money creation, rejects 100%-money
Norbert Häring

10 comments:

Andrew Anderson said...

At the same time, the Bundesbank rejects the proposal of 100%-money, i.e. bank deposits fully backed by central bank money.…

If we were all allowed accounts at the central bank, then those accounts would not be BACKED by central bank money, they would CONSIST of central bank money.

As for 100% private banks with 100% voluntary depositors, why shouldn't they be allowed to create all the new deposits/liabilities they dare and when they can't meet one then they get ruthlessly foreclosed on - same as they do to others.

So, we can have a system where all citizens can deal directly in central bank money and/or deal with commercial bank deposits/liabilities as they choose.

What's not to like? Fairness? Equal protection under the law? The prudent separation of risk-free, liquid deposits at the central bank from at-risk, not necessarily liquid deposits in banks, credit unions, etc?

Neil Wilson said...

About time. I wonder if AA will shut up now and accept he's got it wrong.

Neil Wilson said...

Nope.

Andrew Anderson said...

You're very big on bald assertion, Neil. Now, how about proving I'm wrong for a change?

Ralph Musgrave said...

I've just read the Bundesbank article. The criticisms it makes of 100% reserves have all been made and rebutted several times before. Be nice if those writing Bundesbank articles studied the literature in more detail before opining.

I have run thru the Bundesbank's points in detail and set out the flaws in those points here:

http://ralphanomics.blogspot.co.uk/2017/05/bundesbank-criticises-100-reserve_12.html

Ralph Musgrave said...

Neil won't know this because he knows very little about this subject, but several central banks are actively considering making CB accounts available to everyone. If he wants to stop them going ahead with the idea, he needs to contact them quick and let them have the benefit of his - er - "enormous" knowledge of the subject.

Neil Wilson said...

"but several central banks are actively considering making CB accounts available to everyone."

The UK already does. They are called 'Accounts at National Savings'.

Never been a problem and never will be. As anybody who actually understands how banks actually work (i.e. has actually worked in one) knows.

Got any more falsehoods based upon zero practical understanding and experience?

Andrew Anderson said...

The UK already does. They are called 'Accounts at National Savings'. Neil Wilson

If these accounts are truly sufficient and assuming they are risk-free then what possible need for government insurance of private deposits/liabilities including privately CREATED deposits/liabilities? Except, for example, to violate equal protection under the law in favor of the more so-called credit worthy at the expense of the less so-called credit worthy?

Andrew Anderson said...

Never been a problem and never will be. Neil Wilson

They will be a HUGE problem for the banks (assuming they're adequate) when government provided deposit insurance and other privileges for banks are eliminated since bank runs will be as simple as writing a check (or equivalent) to one's risk-free government or central bank account. And that's good since GENUINE not largely SHAM liabilities keep things honest.

Ralph Musgrave said...

I'm delighted to see Neil is aware of the existence of National Savings and Investments in the UK, and that he is aware that this comes very close to anyone who wants to, having an account at the central bank. Why then does Neil object to AA's suggestion that everyone should be able to have an account at the central bank? Does Neil know whether he is coming or going?

The reason I said "very close" above is that NSI account holders are not given check books or plastic cards, so they cannot make payments direct from NSI accounts. But they can transfer money from NSI accounts to regular bank accounts in about 24 hours and then make payments to whoever they want.

Next, AA asks a very relevant question about NSI accounts, namely: “If these accounts are truly sufficient and assuming they are risk-free then what possible need for government insurance of private deposits/liabilities including privately CREATED deposits/liabilities?” Good question. My answer is “not much”.

In fact Ben Dyson, who founded Positive Money, has moved to the Bank of England because (allegedly) he reckons the “central bank accounts for all” which the BoE may set up will be the downfall of government backed accounts at private banks (something Positive Money has always opposed).

Having said that, there is a plausible argument for government backed insurance (e.g. FDIC) for deposits at private banks, namely that if FDIC type systems make a profit or at least break even, where’s the harm? My answer to that, which I spell out in more detail at the link below, is that letting private banks print and lend out home made money amounts to a subsidy of money lenders (i.e. private banks). Or to put it more bluntly, it is not the job of taxpayers or government to back what virtually amounts to counterfeiting.

https://mpra.ub.uni-muenchen.de/78896/1/MPRA_paper_78896.pdf