 Let's start at the beginning. Back in the 1800s through to the 1840s banks at that time actually had the ability to create money. The way they did this was through printing pieces of paper. When you put your coins into the bank they give you a receipt and that receipt would say you've deposited £5. ac yn fan amddir o'r cyfriniadig yw'n gwybod eich bytt animau am y cyfriniad, yn fawr i'r cyfriniad ywplod sydd gennych y cyfrinadau hollwch. yw dweud mai'r cyfriniad o'r cyfriniad felly mae'r bwysig addeg yn cael ei genny. dyna sydd chi'n gofio'r cyfriniad yn y cyfriniad. Rydych chi'n mynd i'r cefnu'r bwysig a'r dafod o'r bwysig hynny eich cyfriniad? achos o'r srfodi o'r rhain oedd y cyfrorth oedd ffír ei wneud y cyfrorth a dyna'n sicrhau am ddaf nhw'n ei particularly o few. Felly, rwyfaint o'r llwy tŷ o'r llwy tŷ o ddefnyddio ydw y cyfrorth o'n llwy tŷ o'r llwy tŷ o ddefnyddio fanれた. Come on, you just issue more pieces of paper with sums of money written on them and people treat them as money then effectively we have the power to create money. The more that we issue the more we can lend and the more we lend the more interest we get. You can imagine with incentives like these it didn't end well. They created too much money and it started to cause instability in the economy it caused banking crises And after a number of years of this happening The government of the day, so it was a Conservative Prime Minister, so Robert Peel, stepped in and said, well we can no longer allow banks to issue paper money because of the problems that it's causing in the economy. So they passed this piece of legislation, the Bank Charter Act, which said from this point on, only the Bank of England will have the authority to create paper money. But they missed something out because paper money isn't the only way that you can make payments. And with the increasing use of checks, people had a way of making payments using the numbers that were in the ledger books of the banks, the accounting entries. So they had this way of making payments without actually needing the real paper or metal money. Over time, as we discovered electricity, we got debit cards, electronic fund transfers and internet banking. So the point now where more than 99% of all the money that changes hands does so electronically. The shocking thing is that even though our monetary system now is electronic, this law has never been updated since 1844, which means that it's just shy of 170 years out of date, the law that actually governs our monetary system. Now the reason that banks can create money is because the liabilities, the accounting entries that they create, are what we are using as money. When you make a debit card, you're not using, you know, there's no 10 pound notes moving from your account to somebody else's account, it's actually just accounting entries between the banks. And this, the Bank of England explains this quite clearly. They say the money-creating sector in the United Kingdom consists of resident banks and building societies. Money-creating organisations issue liabilities that are treated as a media of exchange by others. And those liabilities are the numbers that you see in your account. Now what this has meant is with the sort of, you know, rise of electronic means of payment is that we've reached the point where and most of the money in our economy, broad money comprises liabilities of banks in the form of bank deposits. So most of the money in our economy comprises liabilities of banks in the form of bank deposits. This is when we talk about 97% of the money supply being created by banks, this is what we're talking about. So this chart of the blue line is the bank-issued money supply. This is cash down here at the bottom. So the 3% here, this is 3% of all the money that exists. And then this is the 97% of the money supply that is created by the banking sector. And this 3% is what is covered by the law. And this is the 97% that is ignored by the current laws. So I always found it curious that there's this one part of the state, the police, which is responsible for hunting down and prosecuting anybody who prints their own money privately. Or they call it counterfeiting. And yet there's a whole other part of the state which actually has more resources and more funding to do everything possible to encourage banks, private companies to create money. And I could never really understand why this contradiction was there and why it was good for electronic money to be created by the private banking sector, but bad if anybody's printing paper money. Now, I stumbled across this interview with Paul Fisher on the BBC. When you start printing money, you create some value for yourself. If you can issue £1,000 worth of IOUs to everybody, you've got £1,000 for nothing. And so we do restrict the ability of people to create their own notes in that way. You're protecting us from ourselves? We're protecting you from Charlesons. So he was talking about counterfeiting, but for me the key phrase is this. If you can issue £1,000 worth of IOUs to everybody, you've got £1,000 for nothing. Now what banks do when they make loans is they issue liabilities, IOUs. In the last 10 years alone banks have issued more than a trillion pounds of these new IOUs, these liabilities. Now the something that they got for nothing was a trillion pounds worth of debt, of interest bearing contracts. And this is mortgages, personal loans, business loans. This is debt from us to the banking sector. And as you've seen this morning, the total interest that has to be paid on that debt is a transfer from society to the banking sector of between 108 billion to 217 billion every single year. Now of course some of this comes back to people through the interest on savings accounts and through the bonuses and the commissions and the taxes that banks pay. But it's still a huge amount of this is creamed off in the middle and it's a massive transfer of wealth and it leads to exacerbates inequality. Now I think the economists and the people in government who defend this system and say it's something we should keep and it's something useful. I think they do so because they believe it can be controlled and they believe it can be controlled because they're taught certain stories in economics courses about the money multiplier and that the central bank has control over how much money there is in the economy. We really don't believe it can be controlled and this is one of the reasons why we've settled on this particular style of reform. But the reason it can't be controlled through start, I mean this doesn't look like a money supply that has been controlled. This is something that's out of control. But even Mervyn King has said that the Bank of England's key role has always been to ensure that the economy is supplied with the right quantity of money, neither too much nor too little. For 50 years my predecessors struggled to prevent their being too much so leading to inflation. I found myself in the opposite situation of having to explain that there is too little money in the economy. So this is the most powerful man at one of the most powerful central banks in the world admitting for that the last half a century they have struggled to keep the banks under control, to keep the money supply under control. And if you get an admission like this I think it really shows that the system can't be controlled. The book actually goes into great detail probably about 60 pages explaining why the mechanisms that economists believe can control the money supply no longer work. But fundamentally it's because you have this battle between the desire of the banking sector to create as much money as possible to maximise their profits. Because the more money they create the more they lend, the more they lend the more interest they receive. And the need of the Bank of England to protect the public interest to limit inflation and instability in the economy. And for the last 50 years at least it's been the profit motive of the banks that has won out. So what are the consequences of this? Well firstly we know that banks create too much money. They create this money for the wrong things. So we see the majority of money when it's newly created it goes straight into the housing market and into the financial sector. Very little about 13% over the last 10 years has gone into non-financial businesses. So this is the real economy, the jobs, shops, businesses and factories essentially. And about 10% has gone into credit cards and personal loans, consumer finance. And this has led to financial crisis as Adair Turner said and as we saw this morning. Some of the headlines that have been coming out of the last couple of days are getting worse and worse. Britain is experiencing a worse slump than during the Great Depression. For a while we've been talking about our own recovery growth has been 0.1% and then now we're back into the double dip recession and then we're back into recovery again and now we're back into the triple dip recession. This is a real roller coaster. Global unemployment will reach a record 200 million in 2013. Now 200 million people is nothing useful for those people to be doing really given the situation we're in right now. But there's not enough money, there's not enough numbers in computer systems created by the banking sector to allow those people to do something useful. It's led to massive indebtedness because money is created by banks when they make loans. So as the money supply goes up, the debt goes up as well. And then house prices, an entire generation has been priced out of being able to buy a home. The inequality that we discussed, the instability which is really, really bad for business. You'll always hear economists and lobbyists for the banks saying that the current banking system is good because it provides credit for business and helps the economy to grow. But actually we believe that on net, this current banking system is really harmful for the business economy and for actual wealth creation. It's very environmentally destructive as we talked about this morning. And it's bad for democracy as well. The banks now have more power to shape the economy through their lending than the whole of government. But we have all these MPs scrutinising what the government does and only about 80 board members paying attention to what the banks are doing. And the reason that the system's got to this point is because every time something's gone wrong with the current banking system, the government has stepped in with a safety net or a new support measure to allow the system to continue. And you've seen this at its most extreme over the last sort of five or six years. Now, I want to make the point that this is... Some people assume that if the banking system is structured in a certain way it's because some wise men have sat down and designed it. But the current banking system is, without getting into the evolutionist debate here, there's no signs of intelligent design in the current banking system. It's evolved over time and every time there's been a crisis there's been some new package from the government, some new measure from the Bank of England and things like the bailouts, the funding for lending, all these different schemes to keep the system going. Now, sometimes evolution works out really well and you get something that's quite beautiful and efficient and effective. Sometimes it doesn't work out that well. And there's no prize for guessing which of these two fish represents the banking sector right now. So the thing is, you know if you build your house on sand, it's going to collapse. This is what we have at the moment. We have a banking system that is really built on sand. It doesn't matter how much reinforcement or how much support you do, it's not enough to go to the documents and say, please tread lightly while you're inside the house because it's a bit unstable and if you could lose some weight that would be great too. You have to wipe it away. You have to start again and build something on firm foundations from the ground up and this is what we believe we're doing in the buck. So we have this very dysfunctional system that isn't really working in the interests of the economy or in the interests of society. And my colleague Andrew Jackson, who's done by far the largest part of the work on this book, found this quote which I think really sums up part of the ethos behind the book. A problem is a man made therefore they may be solved by man. No problem of human destiny is beyond human beings. The monetary system is just a collection of rules and laws and computer systems and it's actually remarkably easy to change. The real challenges are the things like the environmental crisis, the water crisis, the energy crisis, the changes that we're going to see over the next 40 years, the growing population. Those are real tangible problems that we need to find real practical ways of dealing with. This is just an artificial monetary system. It's a computer system. So we can't let ourselves be distracted from those big challenges by this artificial, broken, dysfunctional monetary system. So what do we do? Well, I'll take you through these quickly and then we'll go into a bit more detail on each of them. First thing is that we need to remove the power of banks to create money. You need to return that power to a transparent and accountable process. We have money created free of debt. We create money only when inflation is low and stable. We make sure that any new money goes into the real economy instead of into the financial markets and property. And we give us as customers of banks and as members of the public control and transparency over how our money is actually invested. First one, removing the power of banks to create money. Well, I don't want to take you through all the technical details of how this is done. It's explained quite simply in the book but we'll also be releasing in the next month a series of videos that go through step by step if you prefer to see things visually. But just a quick overview. As I said, banks currently have the power to create money because the liabilities that they issue are the money that we use in the economy. So money-creating organisations issue liabilities that are treated as media of exchange by others. We use these liabilities to make payments to each other. In the current system, we're here using the liabilities of these banks to make our payments. And what we do through the particular reforms outlined in the book is that we actually start using money that is created by the Bank of England. So instead of you using a promise to pay from a bank as your way of paying somebody else, you're actually using real electronic money that is being created by the Bank of England. What this means for you as a customer of a bank is that you have two options when you get your salary. You can either say to the bank, look, keep it safe for me. Or you can say to them, I want you to go and invest it for me. I want to get some interest. And if you say you want your money to be kept safe, then this would be put into a transaction account which is effectively the same as a current account now. But the difference between a current account and these new accounts is that your money would actually be at the Bank of England. It would be electronic money stored electronically at the Bank of England. And that would actually be yours. It wouldn't be the banks. They wouldn't be able to play with it, to invest it, to do anything with it. This investment account, what you're actually doing there, is you're giving your electronic money that was created by the Bank, Bank of England, to your bank so that they can then go and lend it to somebody else. And what this does through the fairly simple rule changes and a few accounting changes, this makes banks into what people think they are now, which is intermediaries, middlemen between savers and borrowers. After this reform, what banks will be doing is taking money from savers and investors and actually lending it to borrowers, doing exactly what people think they do now. So with banks no longer having the power to create money, we need to return that power to a transparent and accountable process. You know, we know, I'm sure like everybody is here because they know that we can't trust banks to create money for all the reasons that we've discussed. But I guess you wouldn't trust these people either because the problem is that politicians have the same incentives to abuse the power to create money as the banks do. You know, the more of it they create, the more of an artificial boom they can create in the economy to get people to vote for them. And that's going to end up badly. So what you need to do, the absolute key thing that needs to be done is that you have to separate the decision over how much money is created and what that money is used for because as soon as the same person or the same organisation is making those two decisions, you have a conflict of interest. So what we've suggested is that a new committee, the Money Creation Committee, which would replace the Bank of England's Monetary Policy Committee, becomes responsible for deciding how much the money in the economy needs to increase or decrease by. And the government would be responsible for actually deciding how to get that money into the economy. The really important thing is that you make sure that this Money Creation Committee is sheltered from lobbyists either from the elected government of the day who will have their own objectives for what they want the economy to do, which might line up with the best interests of the economy and from the banks as well. So this whole process needs to be transparent, accountable to Parliament, but we can't have George Osborne calling up the Money Creation Committee and saying, can you put another £100 billion into the economy because I really need a recovery before 2015. Then you need to make sure that money is only created when inflation is low and stable. Let me show you what happens with the current system. Banks increase their lending, which means they're creating more money. This starts to push prices up and they think the economy is healthy so they lend more. They say, wow, look at house prices, we should be lending even more. At this point you're in a bubble, but everybody is convincing themselves it's not a bubble. This is more or less what has happened to the money supply over the last 40 years and particularly over the last 10 years. What was happened with the Money Creation Committee is that they start putting money into the economy and when it starts to cause price rises, so it starts to cause inflation, then they stop. When the inflation goes down, they create money again and then they stop again until things settle out. Instead of when the banks are creating money, the more they create, the more inflation there is and the more they want to create because they think house prices are rising so we can afford to lend more to people to buy houses, the Money Creation Committee actually has a responsibility to stop creating money when it causes inflation. So it's completely the opposite of what the banks will do in that situation. But we often get the question, isn't all Money Creation inflationary? Isn't all Money Creation going to push up prices? Well, it really depends because if you put 40% of all the new money you create into housing and into financial markets, then you're going to expect prices in those markets to go up and we've seen that with housing, we've seen that with the stock market. I don't know if you've seen the newspaper yesterday, but there was a weird headline. First it was, this slump is worse than the Great Depression and beneath that its markets hit four and a half year high. It's like, why is this, why? And it's a symptom of where the money's going and particularly quantitative easing. And if you put instead, put money into non-financial businesses, so into the real economy, then what you're going to do is stimulate that part of the economy. We have two and a half million people at home at the moment doing nothing, they can be employed. And what you'll actually get is economic activity will increase, so the economy will grow. So not all money creation is inflationary. It can actually, if it's put into the right parts of the economy, it can help the economy to grow faster than any sort of inflationary pressure. Okay, we need to create money free of debt. Now, this is one of the most fundamental points of this whole book because the current rules of the monetary system when 97% of all the money we're using is created by banks when they're making loans, it means that the more money we want in the economy, the more debt we have to have. If we've just had a crisis and we need some new money into the economy, then the only real way to get it in there is to have the banks increase our lending, which is why you see such an emphasis now on what we've got to get banks lending again, even though the crisis was caused by people having too much debt. Vice versa, if we want less debt in the economy, then we have to have less money and if we pay our debts, that money is effectively cancelled out. It's just the reverse accounting process of money creation. What we actually need is we need less debt and we need more money in the economy to get out of this current crisis, this current recession. If that's impossible in the current system, as you see here, the two of them are tied together. As the money supply goes up, the debt goes up because basically the money and the debt is the opposite side of the same accounting entry, the same balance sheet. We can expect to see happen if we do have a recovery now with the current system that the debt will rise and eventually this is going to lead to yet another crisis, but it may be much, much worse the next time. What these reforms do is they separate the creation of money from the creation of debt. So when banks are lending, they're actually transferring existing money from a saver to a borrower, but they're not creating money in the process. So the money can be created and money can be used to pay off a lot of the existing debt and also because of some of the other changes that need to be made to the accounting which are explained in the book, it allows us to pay off nearly a trillion pounds of household and personal debt over the course of about 20 years. Now just think about how much of a complete transformation that will make for the lives of most of the people in this country to not have this enormous debt, the personal debt is as high as it's ever been and this changes to the system actually allow this debt to be reduced. So instead of having this annual interest charge on the entire money supply of 108 billion to 217 billion a year, that could be cut down. It could be cut down to possibly half of that, maybe even less. Okay, fifth thing, we need to put money into the real economy. We talked briefly about this, but the way there's about four options that you could use to get this money into the economy and okay so you can spend more in public services, put the money into the government, you can cut taxes, you could pay down the national debt or you could actually just divide it up between people and give it directly to people. So we talk in the book about the combination of these that you would probably want to use and why actually paying down the national debt should be probably the last priority. But the important thing is that all of these things, if they're done right, will get money into the real economy. Whereas what we have now at the moment we have banks most of the money into housing and financial markets and some of this money trickles out of that market into the real economy. What we'd like to see is that as the money comes in, as it's created, it goes to government and then it comes into the real economy first. And then the banks need to borrow that money from people and businesses in the real economy before they can then lend it to, well, either back to the real economy, back to businesses or to housing and to the financial markets. One of the things that we would like to see is that this flow of money into the financial markets into speculation and the trading and that sort of stuff should really be reduced. So six, we need to give ourselves control and transparency over where our money is invested. Now I saw this advert the other day which really made me laugh. Ever wondered where your money goes? This is Lloyd's TSB saying, have you ever wondered where your money goes? I think... Yes, yes. I think they weren't aware of the move your money campaign or how much they were falling into their trap there. Because, no, most people don't think about where their money goes and that's because the bank never tells you. So one of the things that we would do as part of these reforms is require that if you're putting your money into an investment account, you're giving your money up to go and invest it. The banker actually will tell you, we're going to use it for the arms trade, for the oil industry, for tar sands, for investing in businesses or investing in commodity speculation. And some people... We're not naive. Some people won't care about this. They're not going to be bothered. But it means that the people who do care what their money is used for have that option to opt out, to be used in this way and to choose different accounts where their money will be used differently. Is it going to be easy to get this through? Of course not. There's going to be massive opposition and there's huge vested interests. And some of the things that we'll hear over the next few years is these ideas get out into the mainstream, things like it will be inflationary. If you allow the state to create money, that's going to cause inflation. Well, really, this is quite an easy one to answer. And these two is most likely to cause inflation. Banks who want to create as much money as possible because they maximise their profits by creating more or a committee that is responsible for stopping money creation when inflation starts to go up. It's quite a clear choice. And then you'll get, oh, it'll be hyperinflationary. We'll end up like Zimbabwe or Germany in the 1920s. Well, the people making that claim are very ignorant of what actually happened in Zimbabwe and what actually happened in by my republic Germany. Now, in the book, there's a whole appendix on Zimbabwe and other examples where there have been hyperinflations and other examples where states have created money without hyperinflations. But there's a study that we've quoted in there where they go through all 50 recorded hyperinflations in history and found that all of them there's been either an economic collapse or a political collapse or a war before the hyperinflation actually started. It wasn't just because some central bankers started printing money willy nilly. There was some fundamental collapse in the economy before these hyperinflations started. So the idea that this will lead to hyperinflation is, well, very misguided. You'll hear this one all the time. It will drastically reduce the level of credit. We actually heard it from the Independent Commission on Banking and we asked them what they meant by the word drastic. Do they mean like a 10% or a 50%? They didn't really know. They didn't get back to us on that. We also asked them if we could see their calculations or their modelling or the working out that they've done to show that it would be drastic. And funnily enough they didn't get back to us on that either. So this is just a knee-jerk reaction without really understanding the way the system works. The savings products at the moment where people have said I don't need my money for the next 6 or 12 months already today there is enough money in those accounts or enough liabilities to cover all of the investment that is needed in the business economy and to keep people being able to buy houses without pushing house prices up. So there's already enough money out there to provide finance to the bits of the economy that we really need. There might not be enough money to push house prices up 200% in 10 years. There might not be enough money to fund all this speculation in the financial markets. I think that's a good thing. And then you'll hear this one. You'll kill Britain's best industry. We need the banking sector because the taxes they pay pay for our schools and our hospitals and if not we'd all be scratching out or living in the dirt. It's not true. The banking sector in the year that it paid the most tax in history manufacturing in this country paid three times more tax. Does anybody want to take a guess of what this number represents? It's the number of workers in banking relative to the numbers of workers in the rest of the economy. Banking only employs one in every 53 people. So for every one person in banking every one person in this industry not asking them to make changes and not asking them to to reform the way that they do business. There are 52 people in the rest of the economy that are negatively affected by the impacts of this banking sector. So, you know, these reforms are really for the other 98% of the working population. You know, for the businesses and for the people with jobs outside of banking. Now, you should probably qualify this as there's nothing personal about what we're doing against banks or the people who work in them. It's the industry that is the problem. It's the design of the industry and the effects that it's having. And it's not about the people in them. It's about actually changing the rules of the game and the way these companies can operate. You also hear it's too radical which is quite bizarre given that we're just proposing that this law from the 1840s is updated. I can't imagine the Conservatives of 1840s were really considered to be radicals. So, the benefits of reforming. We get stable money. We get this instead of this. We get debt falling like this. Instead of house price bubbles, house prices that will stay flat until earnings have actually caught up and they become affordable again. On employment, I just want to give you one example of how ridiculous this current system is to wrap up with. We have 2.5 million people sat at home doing nothing, desperately looking for a job or to do for a job. We also have things that need doing in the economy. We have schools that need rebuilding. And the government's being sort of dilly-dallying over this school rebuilding program for the last few years saying, well, there's not enough money, we're in a recession, we need to get our public finances under order. And they finally come out and allocated £2 billion for rebuilding schools in England. £2 billion sounds like a lot of money. And it's so much money to borrow it from private finance initiative. So they're actually borrowing money that is created through accounting entries from banks and paying interest on that because they haven't got enough money of their own to fund rebuilding schools. Now, the reason for that, that, according to the BBC, is that this arrangement will spare the Department for Education's mega capital budget, the annual value of which has been halved over this parliament to £3.8 billion. So £3.8 billion for rebuilding schools and keeping this whole education system, you know, the actual physical infrastructure of this in order. Again, sounds like a lot of money, but this green line at the top here is how much money has been put into mortgages and consumer finance over the last 20 odd years. In June 1999, the banks created £4.5 billion of new money in one month to put into the property market. Into buying existing houses and building a few new ones. In July 2005, they created £7 billion in one month. And then in September 2007, they created £16 billion in one month to go into property. So in the space of one week, they've created as much money as the government is willing to spend on rebuilding schools in an entire year. Now, this is crazy. If we give banks the power to create money, this is what they're going to do. They're going to put it into markets like this instead of doing things that we actually need to do. And as I said before, we can't allow this system to continue working the way it is, given the real challenges that we're going to face over the next 40 years. So this is what the book is about. It can be heavy going at parts. We've had to kind of design it partly for the economists who would normally dismiss these sort of ideas, but we have tried to write it so that if you're not, if you don't have that background in economics, if you start from the beginning, your knowledge will build up and this will really start to make sense. And if you get to the end, then you will know more about the monetary system than 99% of professional economists. So yeah, so this is it. This is what we need to do. The pressure is really on because of the real challenges that we're facing. And it really is. I mean this movement in this country is by far the strongest in the world. The people in this room, this is the biggest gathering that I know of for reforming the monetary system. So if we don't do it, then nobody else is going to push it through. So it's really down to us. So that's what the rest of this afternoon is going to be about and how we really change the system.