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My letter to the Financial Times: All finance requires is an upgrade for the internet age

June 13, 2018 - 13:02 -- Admin

All finance requires is an upgrade for the internet age
From Nicholas Gruen, VIC, Australia

Given the resounding “No” from the Swiss in the Vollgeld or “sovereign money” referendum, and despite Bob Sleeper’s relief (Letters, June 12), Martin Wolf’s central question remains (“Why the Swiss should vote for ‘Vollgeld’”, June 6). A decade after the devastation, where’s the “radical rethink” of finance?

Mr Wolf kindly mentioned my own alternative plan, which does nothing more than upgrade the existing public-private partnership that is banking for the internet age.

Today central banks provide wholesale utility banking services to commercial banks, which then retail them to all. Just as Barclays and Lloyds can now, in my plan anyone could deposit funds with the Bank of England and use those funds to pay other account holders. They could also borrow from the BoE if it entails minimal risk. I’ve suggested lending up to just 60 per cent of the value of a home mortgage. As with Barclays and Lloyds, interest would be paid on deposits and loans at Bank Rate.

These arrangements:

  • Generate tens of billions of pounds in government revenue from mortgage payments to the central bank;
  • Slash home loan interest rates on super-safe lending (while increasing them for the — still privately provided — riskier lending over 60 per cent of a property’s value);
  • Help develop a payments system less vulnerable to commercial bank insolvency and the attendant giveaways to plutocrats;
  • Give monetary policy far more traction near zero interest rates. We’ve been here before.

In 1844 only commercial banks issued retail banknotes. Despite one parliamentarian’s warning of the “disastrous consequences” of government involvement in banking, Bank of England banknotes largely displaced the risk, fragmentation and cost of the alternative. This led commercial banks to focus on where they could add the most value — in funding and pricing commercial credit and pricing the attendant risks. A

All we need do now is replicate that move for the internet age.

Nicholas Gruen Chief Executive, Lateral Economics, Port Melbourne, VIC, Australia Visiting Professor, King’s College London Policy Institute