Money and Debt : The Public Role of Banks

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Money and Debt: The Public Role of Banks Preface Contents About the Authors Chapter 1: Introduction 1.1 What Is Money? 1.2 What Is Debt? 1.3 The Importance of Trust 1.4 The Dynamism of the Financial Monetary System 1.5 Overview of the Report Bibliography Chapter 2: How Is Money Created? 2.1 Banks and Money Creation 2.1.1 Electronic Payments and Cash Withdrawals 2.1.2 Free Money? 2.2 Driving and Constraining Forces 2.2.1 The Role of Households and Businesses 2.2.2 Banks´ Balance Sheet Risks 2.2.2.1 Absorbing Losses - Leverage and Capital Ratios 2.2.2.2 Meeting Withdrawals: Liquidity Ratios and Reserve Requirements 2.3 Monetary Policy 2.3.1 Objectives and Instruments 2.3.2 How Monetary Policy Works in Practice 2.3.3 Quantitative Easing 2.4 Conclusion Bibliography Chapter 3: The History of Money Creation 3.1 Money and Finance in the Nineteenth Century 3.1.1 Money and Payments 3.1.2 Financing 3.1.3 Policy and Regulation 3.1.4 Summary: Money Creation in the Nineteenth Century 3.2 The Interwar Period and the Great Depression (1918-1939) 3.2.1 Money and Payments 3.2.2 Financing 3.2.3 Policy and Regulation 3.2.4 Summary: Money Creation in the Interwar Period 3.3 The Bretton Woods Period (1945-1973) 3.3.1 Money and Payments 3.3.2 Financing 3.3.3 Policy and Regulation 3.3.4 Summary: Money Creation in the Bretton Woods Period 3.4 The Pre-crisis Period (1973-2008) 3.4.1 Money and Payments 3.4.2 Financing 3.4.3 Policy and Regulation 3.4.4 Summary: Money Creation in the Pre-crisis Period 3.5 Conclusion Bibliography Chapter 4: An Appraisal of the Financial Monetary System 4.1 Economic Contribution 4.1.1 The Payment System 4.1.2 The Volume of Debt 4.1.3 Reducing Debt Levels 4.2 Stability 4.2.1 Stability of Individual Banks 4.2.2 Systemic Instability 4.3 Fairness 4.3.1 The Public Costs of a Crisis 4.3.2 Financial Benefits for Banks 4.3.3 Benefits and Costs of Increased Indebtedness 4.4 Legitimacy and Influence 4.4.1 The Public-Private Nature of Financial Institutions 4.4.2 Options for Democratic Control 4.4.3 Position of Citizens 4.5 Conclusion Bibliography Chapter 5: How Does the Sovereign Money System Work? 5.1 The Payment System 5.1.1 Payment Accounts at Payment Institutions 5.1.2 Payment Accounts at the Central Bank 5.1.3 Conclusion 5.2 The Financial System 5.2.1 Financing Institutions Operating on the Basis of Debt 5.2.2 Financing Institutions Operating on the Basis of Equity Only 5.2.3 Private and Public Lending 5.3 Monetary Policy and Financial Regulation 5.3.1 The Creation, Allocation and Destruction of Money 5.3.2 Regulating the Financial System 5.3.3 Independence and Accountability 5.4 Transition to the New System 5.4.1 Towards a New Payment System 5.4.2 Towards a New Financial System 5.5 Conclusion Bibliography Chapter 6: Advantages and Disadvantages of the Sovereign Money System 6.1 Economic Contribution 6.1.1 The Operation of the Payment System 6.1.2 The Financial System´s Procyclicality 6.1.3 Price and Availability of Credit 6.1.4 One-Off Debt Reduction 6.1.5 Summary 6.2 Stability 6.2.1 The Stability of Individual Institutions 6.2.2 Systemic Risks 6.2.3 Summary 6.3 Fairness 6.3.1 Abolition of Implicit and Explicit Public Support 6.3.2 Seigniorage 6.3.3 The Benefits and Costs of Debt 6.3.4 Summary 6.4 Legitimacy 6.4.1 The Separation of Public and Private Activities 6.4.2 Public Control and Democratic Oversight 6.4.3 The Position of Citizens 6.4.4 Summary 6.5 Other Issues 6.5.1 The International Dimension 6.5.2 The Transition 6.5.3 Dynamics and Innovation 6.6 Conclusion Bibliography Chapter 7: Policies to Restore the Balance in the Current System 7.1 Taming the Money and Debt Cycle 7.1.1 Curbing the Growth of Debt 7.1.1.1 Macroprudential Policy 7.1.1.2 Tax Incentives 7.1.2 Policy Coherence and the Structure of the Financial Sector 7.1.2.1 Policy Coherence 7.1.2.2 Structural Measures 7.1.3 Preparedness for the Next Financial Crisis 7.1.3.1 Tightening of Banking Supervision 7.1.3.2 Problem Banks 7.1.3.3 Monetary Policy in the Next Crisis 7.1.3.4 Interim Conclusion 7.2 Balance Between Public and Private Interests 7.2.1 A Clearer Boundary Between Public and Private Interests 7.2.1.1 The Ring-Fencing of Public Activities 7.2.1.2 Reducing the Public Guarantee 7.2.1.3 Better Representation of Public Interests in the Banking Sector 7.2.1.4 Greater Awareness of Public Duty 7.2.1.5 Position of the Citizen 7.2.2 Interim Conclusion 7.3 Conclusion Bibliography Chapter 8: Conclusions and Recommendations 8.1 How Does Money Creation Work? 8.2 The Goals of the Financial Monetary System 8.3 Is the Sovereign Money System a Solution? 8.4 Two Major Challenges for the Current System 8.4.1 Balanced Growth of Money and Debt 8.4.2 Balance Between Public and Private Interests 8.5 Recommendations 8.5.1 Promote Diversity in the Financial Sector 8.5.2 Curb Excessive Debt Growth 8.5.3 Be Better Prepared for the Next Crisis 8.5.4 Anchor the Banks´ Public Dimension 8.6 Conclusion Bibliography Annexes Annex I: List of Experts Consulted Annex II: Tax Regime, Debt and Banks´ Risk Attitude Bibliography