Introduction

Shifting the global economy towards sustainability

Making Money Our Servant Rather Than Our Master

Right Livelihood

Social enterprise

Legal and Financial Issues

’The modern banking system manufactures money out of nothing.  This process is perhaps the most astounding sleight of hand that was ever invented’ – Lord Josiah Smith, former Director of the Bank of England

Impacts of our Current Money System

The creation of money with interest has a major impact on the operation of today’s economies. Interest payments are a mechanism for transferring wealth from the poor to the rich, both within nations and internationally.  This can be seen clearly in the findings of research from Germany, as represented in the chart in the sidebar.  This demonstrates that the wealthiest ten per cent of the population earn approximately twice as much in interest earnings on their deposits at the bank as they pay in interest payments on their loans.  For the bottom 80 per cent, this equation is reversed, with outgoings being double their income. 

This same principle also operates on the international level; the countries of the South have paid billions of US dollars in debt repayment to the rich nations and global financial institutions without, in many cases, repaying any of the capital borrowed at all.  In 2000, the indebted nations of the global South spent 13 dollars on debt repayment for every one they received in aid.

Since investment capital tends to be allocated to the most profitable projects, banks will generally be more inclined to lend to large-scale, industrial corporations than to small-scale, community-based initiatives.  As long as we use the same currency to mediate transactions among both international arms dealers and community gardeners, the latter will tend to struggle for liquidity.

Some also believe that the creation of money with interest builds a growth imperative into the economy, since it is argued that the economy needs to grow to enable borrowers to repay both the capital and the interest on their loans.  Others reject this assertion, arguing that for every dollar of new debt created there is a new and equal interest bearing deposit on the collective balance sheet and that a steady-state economy is, in fact, compatible with a money system based on debt and interest.

One final way in which money works today that has a substantial effect on the workings of the global political economy is the use of the US dollar as the international reserve currency.  This follows the decision of the OPEC countries shortly after the end of the Second World War to accept only dollars for their oil.  Today, the dollar is used for trade in most commodities and is the major component in the reserves of the world’s central banks.

This acts as a huge subsidy to the US economy, since countries elsewhere in the world sell goods and services to the US, but instead of buying back from US industries, they keep the dollars so as to be able to trade among themselves – as well as to be able to protect their currencies from speculative attack.  This effective transfer of wealth from the rest of the world to the US permits the US to be easily the world’s largest debtor nation, while driving the unprecedented widening of wealth disparity within the global community.

• Impacts of our current money system
• Reforming money to make it work for people and planet

Africa’s foreign debt, from World Bank
Click on image to enlarge

Contrast in interest payments and returns, source Bundesbank - Click on image to enlarge