Many of our economic problems come from the way we create electronic cash. Not bank notes or coins but electronic cash that gets deposited in bank accounts. All electronic cash is created by banks either national, reserve, state, or private. All electronic cash is created as loans.
We would think it strange if the government charged us interest on notes and coins yet we do not think it strange that banks charge us interest when they create electronic cash. The reason we do not think it strange is that we cannot distinguish between money created for loans that have asset backing and money created as loans but which also increases the money supply. This happens because there is no way to distinguish which loans increase the money supply and which loans do not.
One solution to this problem is to deliberately create electronic cash so that there is plenty of money available for banks to use when they make loans. In other words when banks make regular loans they do not have create any extra money .
A fair and equitable way to create electronic cash is to create it and distributed it widely throughout the community for specific investment purposes.
For example, we could create electronic cash that must be used to build new renewable energy plants. If interest free electronic cash was invested in renewable energy plants then we would find that energy from such a plant was cheaper than energy from fossil fuels.
If we gave the electronic cash as a loan then we would find that the loans would be repaid from the profits from selling the energy.
We can create electronic cash for many other reasons. The issues are how much to create and what to do with it when it is created. We can regulate the amount of cash we create by observing the interest rates on existing money. If interest rates increase then we need to create more cash. If interest rates decrease then we create less cash.
We can guarantee the electronic cash will be used for productive purposes if we distribute it widely and we allocate it to people who will invest it in something of value to them. The people most likely to do this are those who have little of value as they will wish to increase their wealth by investing it wisely.
This approach would address many problems. It would give us cheaper clean energy and it would stop recessions and depressions in any country that adopts the approach. It could allocate resources to areas of the economy where resources need to be allocated – like education and food production and public transport and health services.
The advantage of this approach is that it can all be done within the existing monetary and regulatory framework. Public banks can create electronic cash as interest free loans and can distribute it throughout the community. Private banks can do the same provided the State guarantees the interest free loans.