Wouldn’t a properly nationalised bank achieve the same thing debt-free money advocates and the proposed Bank of England act are ultimately trying to do?

I know this makes most economists go red in the face, have palpitations and scream “hyperinflation” at the merest mention of it.

However, when the government buys back bonds it has issued with money created from nothing, then surely these bonds have been “zoned out” and the debt-free money has not added to the money supply?

This has the further advantage of there being no interest to pay on the newly created money.

If bonds are bought by debt-free money, then surely no extra money is poured into the economy to cause inflation.

Or am I wrong?

We will be publishing the “technical version” of how banks create money, or broad money to be more specific, shortly. We’ve gone through a number of lengthy documents including the terms and conditions a commercial bank needs to sign up to the Bank of England. You may find this technical version more useful than a simplified version, but it is important to bear in mind that even though broad money is not the same as notes and coins, when there is a bank run, the shortfall is printed up and paid for by the taxpayer, and becomes “real money”, and until such time the broad money can be traded as if it were notes and coins, so, therefore, essentially, the banks do create money.

You’re correct that the reform will make the pound more attractive to foreign investors. However, at the same time it will have the effect of gradually reducing the overall levels of household, corporate and government debt. With lower debt (and lower repayments), people have more disposable income, meaning that they can afford to import more. As foreign investors buy more pounds (because it would be one of the safest currencies in the world) this would push the price of the pound up, but the increased importing by UK consumers would push the pound back down. So, in short, it should all balance out, meaning there would be no real implications for foreign exchange rates – there certainly wouldn’t be a lot of domestic businesses going bust.

I think you might’ve misunderstood certain aspects of the reform – if you get chance, have a read through the rest of the site. No banks would be nationalised (we wouldn’t recommend the nationalization of banks and didn’t support the UK government’s purchase of Northern Rock, RBS and so on). Banks would continue to be brokers of credit, borrowing from savers and lending to borrowers.

Foreign businesses would probably appreciate the fact that, post-reform, we would have one of the most stable banking sectors in the world, probably a lower tax burden than most other countries, and a stable currency. So, no, they would have no reason at all to pull out their investments.

Again, I think you’ve misunderstood most of the reform. Have a read through the rest of the ‘How it Works’ section and then get back to us if you still think it wouldn’t work.

Banks make loans, and they create money. Marx and Engels would have the Government make loans, and create money. We are suggesting the government creates money, but the market is still responsible for loans.

Our idea is categorically not similar to communism, and cannot be classified as a left wing or a right wing idea, we are suggesting that this change in the way money is created can be used to alleviate public and private debt, and provide vastly increased funds for the government to use (or use in the place of taxes), this is an attractive prospect whatever part of the political compass you reside in.