The Green Party Conference has just passed a radical change to our monetary policy. We now have a policy that states how we would control the overall money supply, via fractional reserves and control of derivatives, and how we would maintain and direct the supply of new money.
New money is injected into the economy through the Bank of England providing the Treasury with the money to spend on much needed projects. This form of quantitative easing means that renewables, energy reduction, public transport and so on can be properly funded.
Money supply can be contracted through removal of money from the system allowing us to move towards a steady state economy - no economic growth is what we want!
EC660 In a Green society the informal sector will eventually gain in significance so that formal transactions and money generally will have a lesser role than at present. There is however no reason why a financial system cannot be made to work in the interests of the community. Practical decentralisation of banking and monetary policy will therefore be linked with a programme of political devolution.
EC661 The world money supply has increased over the medium to long term. Almost all is created by commercial lending institutions. The resultant debts are an important promoter of economic growth and consumption, as well as instability. The emphasis in monetary policy will be to control and redirect the creation of money towards socially and environmentally sound areas of the economy, and away from unsustainable and consumption-driven areas.
EC662 Greed-driven lending and financial engineering lead to the accumulation of debts, derivatives and other securities based on debt, and so to financial crises. In particular we aim to avoid:
1 Excessive economic dependence on private debt;
2 The reliance of banks on inter-bank lending rather than customer deposits;
3 Excessive lending on mortgages and for consumption;
4 Complex and opaque financial instruments, which managers of financial institutions and regulators themselves do not understand;
5 Lack of transparency on financial markets, and lax and inadequate official regulation.
EC663 The current economic system enables commercial banks and other financial institutions to exert an unacceptably large influence on the economy. Their lending power should be reined in, enabling the emphasis of lending to be transferred to sustainable production."
EC664 We will introduce strict controls on the financial sector to ensure that it serves the purposes of a sustainable economy. To ensure stability, we will regulate all financial instruments firmly and permit only those that are transparent, that offer limited risk of financial destabilisation and are clearly beneficial. We will ensure there is stricter regulation of the banks, limiting them principally to the on-lending of customer deposits and enforcing fractional reserve ratios. We will require transparency in all financial trading, including that undertaken by private investment funds.
EC665 Since these restrictions on bank-lending will severely restrict the money supply, the Monetary Policy Committee of the Bank of England will be instructed to monitor the need for increase (or decrease) in the money supply, based initially on maintaining the amount of money existing at the time of implementation of these measures. Criteria will be developed in the light of experience, aiming to avoid both inflation and deflation. It will accordingly instruct the Bank of England to create any supplement needed, on a monthly basis, and credit it to the Treasury to be spent by the government on projects that help society and environment. If the occasion arises that a surplus is threatening to cause inflation, the Bank of England will receive back and cancel an appropriate amount of money.
EC666 In the longer term the banking system should be largely brought under democratic control, preferably at a local level. This will allow the process to work in the best interests of the community as a whole, rather than principally in the interests of commercial banks and their shareholders.
EC667 The Bank of England will continue to be the institution for the regulation of the national currency and the setting of base interest rates. However, it will not focus on narrow economic indicators such as the rate of inflation, but instead will take a broader view on the impact of its decisions on the economy as a whole. Final decisions on the setting of base interest rates will be made by a democratically accountable committee made up of representatives selected from the different regions of the country.
EC668 In order to help bring about the democratisation of the banking system, and in pursuit of our policies to support the growth of local economies, a network of local Community Banks will be established. These will be democratically accountable non-profit-making trusts, which will be able to provide low-cost finance both at district and regional levels. Any operating surplus arising from these Community Banks will be reinvested in their local communities. Community Banks will be empowered to create credit in the same way that commercial banks currently do, and will be given favourable conditions for doing so by the central bank. They will also be able to create their own local currencies, to operate alongside the national currency, where this is supported by the local community.
EC669 In order to bring about a more socially equitable society, it is important that poorer citizens have access to affordable credit, which can give them an opportunity to increase their basic living standards. Alongside Community Banks, measures to help facilitate this will include the promotion and support of credit unions and micro-credit schemes in which small groups of people cooperate to provide guaranteed small loans to each other.