Battlecry
2 Jun 2008, 05:36 AM
This is a basic proposal I have for an alternative to the current system of banking we have adopted on a global scale, fractional reserve banking. It's very brief and might have a few inconsistencies, but I still consider it draft material as I've only started to become knowledgeable on the subject of finance rather recently.
The Fractional Reserve Banking System consists of a central bank and numerous regional private banks. The private banks operate as businesses; they gain their revenue by charging interest for loans and other services. The private banks are able to create money by issuing credit, money that does not physically exist in the banks reserves, and issue it out to lenders at interest. Because of this, inflation and debt is perpetually increasing. Even the Federal government is charged interest on its own money that it lends, which is why the national debt of the United States is constantly rising. The irrationality of it is that the government is charged interest for using the money it created. The reason the system functions this way is because there are business interests, private individuals who make a profit off of the interest charged.
The system I propose would solve the issue of perpetually rising debt and the excessive control a few individuals who own the major financial institutions wield over society.
The proposal consists of direct government control over the production and distribution of currency, with a central bank and regional government banks that provide services to citizens such as holding valuables without cost and providing fiat loan services at low interest. (By fiat currency, I am referring to government-created money that physically exists) The excess revenue the government banks generate through charging low interest rates would be used as a method of public finance. Only the government would have the authority to create money, and could only lend existing, fiat currency; that is, the government could not create money through issuing credit that does not exist. The interest rates would be subject to a loan market, because the government would not simply be able to issue out nonexistent credit to everyone who demanded such. If demand for loans increases, interest rates would rise accordingly.
The government would not accumulate huge national debts because it would not need to borrow its own money at interest. This would naturally entail the elimination of private banks and the current Federal Reserve System.
Digitalization of Currency
With the establishment of the government banking system, currency would be digitalized and cards issued out to citizens by the government banks. The advantages of digitalization would be better centralization and security of financial assets. The user would be able to place as much money on a single card as he or she desires. Unlike a credit card, there would be no additional costs associated with using the card with transactions being immediate. In the case of fraud or the card being stolen, the government banks would be able to immediately cancel the card and re-issue the money lost to the user, perhaps this being the only instance when the bank would be allowed to issue out credit that does not exist if the bank has very limited assets in reserve. To encourage personal responsibility and discourage carefree handling of the card, a small fee will be charged for restoring financial assets lost due to fraud or the card being stolen.
"The Government should create, issue, and circulate all the currency and credits needed to satisfy the spending power of the Government and the buying power of consumers. By the adoption of these principles, the taxpayers will be saved immense sums of interest." ? Abraham Lincoln
The Fractional Reserve Banking System consists of a central bank and numerous regional private banks. The private banks operate as businesses; they gain their revenue by charging interest for loans and other services. The private banks are able to create money by issuing credit, money that does not physically exist in the banks reserves, and issue it out to lenders at interest. Because of this, inflation and debt is perpetually increasing. Even the Federal government is charged interest on its own money that it lends, which is why the national debt of the United States is constantly rising. The irrationality of it is that the government is charged interest for using the money it created. The reason the system functions this way is because there are business interests, private individuals who make a profit off of the interest charged.
The system I propose would solve the issue of perpetually rising debt and the excessive control a few individuals who own the major financial institutions wield over society.
The proposal consists of direct government control over the production and distribution of currency, with a central bank and regional government banks that provide services to citizens such as holding valuables without cost and providing fiat loan services at low interest. (By fiat currency, I am referring to government-created money that physically exists) The excess revenue the government banks generate through charging low interest rates would be used as a method of public finance. Only the government would have the authority to create money, and could only lend existing, fiat currency; that is, the government could not create money through issuing credit that does not exist. The interest rates would be subject to a loan market, because the government would not simply be able to issue out nonexistent credit to everyone who demanded such. If demand for loans increases, interest rates would rise accordingly.
The government would not accumulate huge national debts because it would not need to borrow its own money at interest. This would naturally entail the elimination of private banks and the current Federal Reserve System.
Digitalization of Currency
With the establishment of the government banking system, currency would be digitalized and cards issued out to citizens by the government banks. The advantages of digitalization would be better centralization and security of financial assets. The user would be able to place as much money on a single card as he or she desires. Unlike a credit card, there would be no additional costs associated with using the card with transactions being immediate. In the case of fraud or the card being stolen, the government banks would be able to immediately cancel the card and re-issue the money lost to the user, perhaps this being the only instance when the bank would be allowed to issue out credit that does not exist if the bank has very limited assets in reserve. To encourage personal responsibility and discourage carefree handling of the card, a small fee will be charged for restoring financial assets lost due to fraud or the card being stolen.
"The Government should create, issue, and circulate all the currency and credits needed to satisfy the spending power of the Government and the buying power of consumers. By the adoption of these principles, the taxpayers will be saved immense sums of interest." ? Abraham Lincoln