 So thank you very much. It's a pleasure to be here. I should say that I've had, even by my standards, an exceptionally busy day in which I've written a 1700 word, or finished a 1700 word, response to Kenneth Rogoff's review of my book The Prospect, written this speech, and written a column. And I've never done so much before 4.30. So if I am completely incoherent and verging on the catatonic I attributed entirely to this experience, I am very grateful to the Institute of Chartered Accountants of England and Wales. I was thinking as I was saying that how wisely you chose your name, nothing about the United Kingdom in it, which you might have to change very soon. And I'm also grateful to Positive Money. They've done some very, very interesting work, which I've read and have cited in my book. And I think it's admirable and important that we have this debate on the future of the monetary and financial systems, which are obviously highly closely interconnected. And that's the theme of my book, but I have to tell you, just to be completely transparent, that though these issues, the possibility of eliminating the fractional reserve banking system, which I'll come to in a moment, is discussed in my book, it is by far from the only theme of the book. In fact, it's only perhaps too small a part, but it's only a part of what I recommend, because I've taken the view in my own writing that one has to make proposals for reform at many levels, some which are relatively imaginable relatively soon, and will lead to big improvements in my view, and would stand anyway, whatever we do with the monetary system, and some which are more radical like these, because these clearly are radical changes. They've been discussed for a long time. No country has yet, to my knowledge, adopted them. So I wasn't prepared to tie myself entirely to this mast. Now, so that's the book. Let me just say what I'd like to touch upon. And what I'm going to do is really quite analytical. I'm not going to try and produce a stump speech. I wouldn't be very good at it anyway. And I think there are some fascinating intellectual questions associated with the idea of performing the monetary system. And with that, of course, the financial system. So what I'm going to do in my remarks, I'm going to, I'm famous or notorious or infamous for always producing numbered lists, so people can follow me. In the case of a talk of this kind, I think it will actually be helpful. So I'm going to focus on four questions. The first, what is the fundamental case for having permanent, not temporary, permanent government creation of money, returning the function of creating money in our society from the private sector, which as I'm sure you know, creates virtually all the money in our economy. A point which was already noted in detail by Knutlick Selle in his great book on interest and money in the late end of the 19th century. So this is not a new idea. So transferring this back to the government. The second question I'm going to ask is, does it matter precisely how we go about government creation of money? And there are two variants on this idea out there. And I'm going to discuss those. One of them is positive monies and the other is, goes more under the heading of 100% reserve banking. I will argue, I may be corrected, that they're really not significantly different. And much the most important section of what I have to say is to deal with the objections to having a system in which the government creates most of the money in our economy. And then I'm finally going to discuss possible ways forward, given where we are now and given, I think, the inevitable extreme difficulty of shifting overnight to entirely different system. So those are the things I'm going to touch upon in my remarks. So first, why should we do this? Well, there are, very broadly speaking, two big classes of reasons for this. The one is, I suppose you might call, political philosophy. There's no doubt at all that money is a social creation. It's a creation of society. It's one of our greatest inventions. I don't, there's any doubt that money is one of our greatest inventions. There's lots of debate about how precisely it was invented, what the role of money was as opposed to credit. I think it's now pretty clear to me that the credit came before money view is correct, but I'm not going to go into all that. But it's a great social creation without which the operation of our economic systems and lives, decentralized decision making, will be really impossible to imagine. And the argument would be, is why should we let such a social creation be handed over in full to profit seeking private enterprises? The state exists to pursue the public good, at least in theory, and why should it not have this role in the case of money? And of course it does have this role fundamentally in any case, because it ensures the whole system in all modern economies through the central bank. That's what the central bank does. One way I put this in my past writings is the central bank basically guarantees that the promises of banks to which our money, your deposits, our money, they will, can be redeemed at par on demand, can actually be fulfilled. Banks, the central bank makes that possible. So the government is inextricably involved anyway. And therefore it's a public-private partnership anyway. The second reason for doing so, the reason for doing this, is that government creation of money would lead to a fundamentally more stable financial system. And first, because it would eliminate fractional reserve intermediation, that is to say it would eliminate, in theory, a system in which banks make a promise on the liability side of their balance sheet. They make a promise to depositors, which are liabilities of banks, deposits are liabilities of banks, to be able to give them money on demand. But on the other side of their balance sheet, they hold assets that are illiquid, uncertain in value. And very obviously then, very clearly, there are states of the world, quite plausible states in the world, in which they can't meet those promises. And that creates instability. The second reason for this is that what I've just described isn't quite right, really and truly what's going on in the system is that banks create money. They create money by making advances, and with each advance they create a deposit. And that is the way money is created in our economy, and this tends to create extreme instability in the credit system. It needs to create an expansion during good times when there are seen to be very good opportunities for lending, which allows them to lend more, creating more money, which then tends to push up the prices of assets, therefore justifying the decision, that gives you the credit cycle. So that's the second reason why getting rid of government creation, moving to government creation of money, might, it is argued, lead to a more stable private financial system. Then there's a completely different argument, which is very attractive to many people, which is that if government took back the power to create money from the private sector, it would have a cheaper way of funding itself. It wouldn't have to pay interest, or at least it would have to pay much less interest because it would appropriate to itself, if you like, the liquidity services of money, get the value of that for itself. And it would lower the cost of borrowing for the government, essentially transferring this from the private sector. I'm not going to get into the very interesting theoretical question of where the scenery, which is really what we're talking about here, the benefit of creating money, which is created by the private sector, where it actually goes. I think it's essentially competed away, or it's largely competed away in the interests of borrowers, but that's not necessarily in the interest of the economy, but that's a controversial issue. Now, an important feature of what I've laid out as the reasons for doing this, I know I'm going on too long, I'll try and accelerate a bit, is that these ideas have historically appealed very, very strongly, and this is very rare, in fact almost unheard of, to the left and the right. This is not a left-wing or a right-wing issue. The right like it, and this is why perhaps the first articulate, fully specified proposals of this kind actually came from the Chicago School of Economics of all places, you know, Milton Friedman's teachers, the teachers of Milton Friedman, including a very famous American economist of the 30s in response to the Great Depression, and they liked it because they thought, if we can get rid of fractional reserve banking, we'll have a more stable financial system, and then we won't have to regulate the financial system so much. The rest of the financial system, as it were, can be allowed to do what it likes because the banking and monetary systems are safe. So they liked it for that reason, and people on the left like it for that reason, but they also like it because it gives government disposal of a great deal of funds, which you can use for any purpose, it seems fit, and that's very attractive to the left. So I'm not going to place positive money on this spectrum, I can leave that to them, but it's a very interesting fact about these debates. So my ideas on positive money on fractional reserve banking which appear in my box will certainly appeal to some really libertarian economists like John Cochran and Robert Lucas, who are very well known figures from the Chicago School, and also obviously people on the left. So that's the first question. Why should we think about this at all? I've tried to set up what the issues are. So the second question is how do we do it? And it seems to me there are roughly speaking two proposals out there, and since they're not, I think, I believe very different, the amount I will specify them relatively simply. The first proposal usually goes under the name of 100% reserve banking, which would mean that all deposits, and you'd have to define exactly what a deposit is for this purpose, but certainly current non-interest bearing deposits, and we'll probably want to go further, are fully backed by liabilities of the government. So matching liabilities of the government. Those could be liabilities of the central bank or of the state itself. It doesn't matter because the central bank is, of course, an organ of the state. It's not an independent part of the state, so I don't think this matters at all, whether it's cash, central bank bills, treasury bills, but they would have to be maturity matches, of course. So they would be relatively short term. And that was, of course, what would allow the government to finance itself at the short term end of the yield curve, and possibly in a low inflation environment, essentially at zero interest rates, which would be clearly very attractive for the government. So if the government then paid people anything, people in the country for any purpose, they would deposit their check with their Bank of England check with the bank, and the bank would then owe a deposit to you, to the depositor, and it would owe a claim on the central bank, and the claim on the central bank, it would have to hold, or the claim on the government, it would have to hold, it couldn't create advances, and in the process it couldn't create deposits. And the alternative proposal, which is positive money proposals, is that the banks are really just agents. They don't even have this degree of complexity of the balance sheet. They would just simply be employed by the state to manage the accounts, which are really in government money. So ultimately, you might think of people actually holding accounts at the Bank of England directly. And I don't think myself that the difference between these two is at all important, as I say. So those are two ways you might go about it. Most of the arguments have been about the former, not about the latter. So now let me move to my third and much most important questions. Why should anyone object to this transparently intelligent and sensible new way of running our monetary system, given, after all, that the alternative system has shown itself consistently over many, many centuries to be radically unstable and the instability has not got smaller over time. And it has got, if anything, bigger. There is an argument to be made, the last financial crisis was a crisis, the worst we've ever seen. And the only way we've avoided its complete collapse was through an absolutely incredible amount of government insurance of the system. So what are the objections? The first objection was exactly the objection that was made by Mr Isan. Have I got your name correctly? It's, I apologize, which is it's going to lead to hyperinflation. The, nobody can trust a government with this amount of power. If it is entitled to print money freely, it creates all the money in the system. Politicians being politicians are bound to abuse the privilege and sooner or later we will be in 1923 by my republic or Mugabe's Zimbabwe of today. And that point was actually made in one of the people, by one of the people, Philip Boo, from the IEA, in response to my column on this subject. There are answers to this objection and they're discussed by positive money and others and I'm going to just repeat them very quickly. The first is you could and indeed I would argue you should leave the decision on how much money to create to an autonomous institution. Let's call it for this moment a central bank. So it wouldn't be left to the finance ministry to decide how much money should be created. That would be as now left to the central bank is just that it would be done in a different way. Obviously it's a different mechanism. And the second argument against it is well it's actually not that different from what we have now. True the government would get the benefit of money creation in a direct way but the government of course is vitally interested in monetary policy today because even if it doesn't get the money directly it's very interested in what it's used for. It loves house price booms for example. So it would like the central bank to create house price booms and indeed it welcomed them until it blew up. So in essence the temptation for the government to abuse the privilege under the assumption the central bank continues to control the process wouldn't be one could argue fundamentally different from the temptation to abuse the process that it has now and it's precisely because of that temptation to abuse the process that we've tended to move in most countries really to a model degree to at least quasi independent central banks and if we have that then why should we worry about this potential for abuse. And after all finally we can remember a time when it was taken for granted the chancellor would manipulate interest rates for purely political reasons and the system that we are now discussing one in which the central bank made money which will be used to fund the government would clearly be better. By the way using it to fund the government is not the only way one could do it. I don't have the time to turn it you could imagine a situation we would agree that it wouldn't fund the government directly but the money creation process would simply be the money being created by the central bank would simply be sent in equal proportions to every individual in the country. You could imagine that I can imagine many variants on this. You could imagine in theory that it wouldn't go to the government at all. But of course all these are political decisions go without the saying they're quasi political decisions. I'm not suggesting that that would get you out of politics. The second set of objections I'm really doing badly here but it will be over in 10 minutes I think. And these are very important. These are really important ones. This is I think the most important. I've had a lot of time discussing the points I'm now going over with a dear turner over the summer because he's completing his book after I completely mind. So it's been very helpful and clarified it. So the second set of questions is that the borderline between banking and non banking or between the monetary system the financial system cannot be policed. It is impossible to police it. Now here this is very very important. This does not affect those arguments which relate to the desire to fund the government more cheaply. They do relate fundamentally to the desire to make the financial system more stable. Clearly if it were not possible to police I the private sector would go ahead and in find some way to create near monies quasi monies. And the private sector has consistently been able to create near monies and quasi monies through the centuries. And you couldn't police it then you would actually the central bank would have to get involved in all that. So in addition to this you'd have a central bank managing that in some way. And it would be more or less the same problem as we have now except we would have this separate monetary system funding the government. And of course the the the rates of interest that the central bank would try to create in the rest of the monetary system. And it would have to have some reserves to do that will be much higher than otherwise because you'd be trying to prevent it from growing as much in the past. I used to take the position personally that 100 percent reserve banking or a close work relative could not possibly work work because banking would reappear outside the banking sector. And this must be true at least to some extent and consider shadow banking today. I mean that's exactly what happened when for example money market mutual funds were created because that that was essentially a way of getting eliminating the need for capital equity capital in banks that offer deposits. That was a perfectly where it was essentially turned out in the crisis money market funds were banks with much more shorter term assets but some of the risks. There is a counter argument however. First or counter arguments if we cannot police the borderline between banking and non banking the entire new regulatory structure we're in the process of creating visibly after the crisis is going to fail. Because a lot of it is built around the assumption that we can do just that that we can police banks impose high capital requirements. Make them safer all of which is certain to increase the incentive to create shadow banking in various forms. And if you can't police that periphery successfully our current reforms are going to fail. So it's essentially an argument against all systems that attempt to make part of the safe system relatively safe which is a perfectly valid libertarian Austrian argument. But it's not the argument but it's not an argument that our officials can use because it's not the argument they're making. The second point I would make is that while I certainly can't eliminate it if you have a credibly safe banking system which clearly provides the payment system and liquidity on a large scale to people who really need it in efficient way. Then it seems to me there are there are ways of controlling the growth of the banking system outside of the shadow banking system outside. And basically there are two ways you can think about it. One which I think is in positive money is that you make lots of other near money type arrangements illegal. I mean essentially you make certain sorts of promises to to to provide cash on demand against assets which have not comparable maturities. You just make them illegal. That's of course the massive regulatory killing murdering process. The other approach which is what the fact which is that by the way this is one way the hundred percent reserve banking people wanted to go. Irving Fisher and perhaps the greatest American economist ever one of the greatest ever live actually said which is more or less the proposal that Larry Kotlakov has come up with more recently is that apart from the banking system which we've got everything else would essentially be investment trust. You make it legal all sorts of promises that we now make. So everything you hold will be in a vehicle which doesn't take risks internally the risk to transmitted to the people who provide the funds. And that would be transparent when you buy a unit trust a good example you know the value of the unit trust will go up and down in the same way. If this trust buys bonds if the bonds go up and down in price you would bear the risk. And and similarly if it bought if it bought small company loans the same would apply. So that's one way of going. The other way of going which I think will be attracted to somebody like John Coffran will be to say well once we've provided something that's really safe and you know it's safe and you make it clear to people it really is say the rest of the financial system. You just say to it it's Wild West time that you're in the Wild West. If you fail you fail we're not going to save you. And after the first tour of free crisis people would realize that actually it is the Wild West and then we would be back to the sort of capital that systems like that used to have before current government intervention which is as Andy Haldane has pointed out leverage ratios of more than three to one were basically unheard of in UK banking in the 90s century. So you really would say there's this absolutely safe system which is safe. What are we going to show it made to be safe and it creates most of the monetary system and the rest of the financial system is the Wild West. And you know it's the Wild West and you'd learn that it's the Wild West because you lose lots of money. So those are the two alternative ways to go to deal with this policing problem. There is an interim way which I suppose my might call the admiral Admarti Helvick way from her. Their interesting book the Bankers New Clothes which is you would go along with simply imposing capital requirements on any institution outside the core banking system that may quasi-monetary money promises but was completely uninsured in any other way. You just simply say you need capital of at least 20% to be allowed to open your doors. And if you don't, we'll close you. It's an interim solution. The final two more and then I will stop and discuss these are relatively simple. The third big objection is it would be impossible to do standard monetary policy. And it's true that if you have 100% reserve banking monetary policy becomes basically a quantitative rather than a price decision. That's assuming the central bank is not also engaged in operating as a lender of last resort of any kind outside the core banking system. But in the banking system the central bank would no longer be a lender of last resort because you wouldn't need a lender. But as I said you could imagine a hybrid system of some kind in which the central bank could still offer reserves in extremis probably at a really penal rate to non-banking institutions. And of course then the central bank's emergency lending rate would influence rates in the rest of the system. And there will be a policy question which is related to my last discussion on how far you would want the central bank to be involved in such a process at all. And it depends on the structure of the remaining or residual financial system and how much risk you would want people to hold in it. But I don't think the monetary policy objection is all important. And then finally, and this is of course I think the most potent objection, it's the objection most people would make. It's the objection Charles Goodheart who's probably the leading bank economist, banking economist in this country, the LSE has made, is that you lose in the process of getting rid of fractional reserve, getting rid of this vulnerability in the system. You would, but you would get rid of really valuable financial intermediation because it's just a matter of fact that lots and lots of people want to hold cash or near cash. But we really don't want everything to be invested in very short-term securities. We want long-term investments to be made and we don't want them to all be funded by the government or for the government to play a central role in their funding. This will be particularly problematic, the argument is, in dealing with lending to small business for small or medium enterprises, because that's something where the bank, because the bank knows about the transaction dealings of these companies, really has knowledge about these companies that nobody else does because they can see their transactions, is uniquely favorably positioned to be a lender too. So there's a natural reason why small or medium enterprises tend to be depended on bank credit, particularly for working capital, but actually also for longer term. Now, I think there is something in this argument and I think it's something one has to think about very carefully, but it is important to stress, and I've stressed this in my response to this, that that sort of lending which is clearly valuable, no doubt it's valuable and we would have to have a system that allowed it to happen, is a terribly small part of the balance sheet activities of contemporary banks. If you take the UK retail bank, so I'm leaving aside the whole derivative stuff, all that junk, sorry, all that valuable stuff, if you leave aside property leavening or property related lending or lending to one another, lending to businesses other than all that is only 9% of their balance sheet. So it's a very poor argument for the banking system as we have, but it is an argument for having something that handles that problem in an effective way and delinking it from the transaction system might in fact be very, very difficult, but I think it's a manageable problem, I don't have time to go through that in detail. So finally, so I hope I've gone through the arguments in such a way as to indicate, actually I think all these objections could be handled, but they're important objections, you have to think of them through and there are options to be made, really big options to be made about how you go about a process of this kind. So then finally possible ways forward, well, you could imagine getting a government that is elected on the assumption that it's going to completely change the financial system overnight, but I don't think that's going to happen tomorrow. So what should we do now, apart from positive money can keep campaigning and since you're much younger than I am, you'll probably succeed in your lifetime, more supposedly than I will, but there are other things we can do. We can make for a start current reserve levels permanent. We don't need to treat them as temporary. We could say that the reserve requirements of the banking sector leads to the levels of current reserves, which are quite high because of QE, and that makes the banking system considerably safer. And we used to have a system like that, very similar actually with more reserve requirements back in the 50s and 60s, and though the banking sector wasn't great then, it worked perfectly well, didn't do anybody, anyone terrible harm, it served the purpose, and by the way it led much more to business because it wasn't in the mortgage business, but that's before we decided to destroy the entire mortgage lending system of this country through the conversion of building societies, another scandal which I'm not going to deal with today. We can let the government partially finance itself through money into creation, the helicopter money option, that seems to be clearly desirable now in the current circumstances and was even more desirable a few levels a few years ago, and we could adjust bank reserve requirements in response and that would as I suggested already tax and curve private credit creation and we can use that constantly in the central bank and can make that part of its monetary policy arrangement so we would have a hybrid system. And finally we could continue while we're doing that to prepare a workout scheme and positive money has made a lot of progress in this and there are other people working on this which could be implemented and sold to the public to deal with the situation after, I don't say if, after the next monstrous crisis. So after the next monster crisis which I don't think will happen in my professional career but I'm not sure, but it will happen for sure given the arguments I made last week in my big page on my book I've spelled out why I think it's so certain next time we have to have properly worked out schemes so we can say well that really is it. It will bankrupt the state completely anyway so we'll have to shift to another system and next time we're going to have to be properly prepared. Thank you for listening to me.