 Mr Steve Baker. Mr Speaker, I beg to move that this House is considered the subject of money creation and society. The methods of money production in society today are profoundly corrupting in ways which would matter to everyone if they were clearly understood. The essence of this debate is who should be allowed to create money, how, and at whose risk. One of the most memorable quotes about money and banking is usually attributed to Henry He said, It's well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning. Well let's hope we don't have a revolution Mr Speaker because I feel sure we are all conservatives on this side. How has it done? Well the process is so simple, the mind is repelled. Whenever a bank makes a loan it simultaneously creates a matching deposit in the borrower's bank account thereby creating new money. a'r rysg fyddion ar y cyfle dda i'r cyflwyno'r byddai'r cyflwyno'r dda. Felly, the institution of money is a human social institution and it can be changed. It has been changed and I believe it should be changed further. Even before QE began, we lived in an era of chronic inflation, monetary inflation, unprecedented in the Industrial Age. I see that some went into commercial property, there were some went into personal loans, credit cards and so on. Actually the rise of lending into real productive businesses, excluding the financial sector, was relatively moderate. But overwhelmingly where this new debt went was into mortgages and into the financial sector. But the point I'm making is this, if a great fountain of new money gushes up into the financial sector we should not be surprised that we find that the banking system is far wealthier than anybody else. We shouldn't be surprised if financings, housing, London and the south-east are far wealthier than anywhere else. Indeed I remember when QE began, when QE began, house prices started rising in Chiswick and Islington. The point is this Mr Speaker, that money is not neutral. It redistributes real income from later to earlier owners, that is, from the poor to the rich on the whole. Now this distribution effect is key to understanding the effect of new money on society. I think it's the primary cause of almost all conflicts revolving around the production of money, the relations between creditors and debtors. Given that I think it raises the question at the heart of this debate, I mean who should create the money? I just asked this question, would Parliament ever have voted to delegate power to create money to those same banks that caused the horrendous financial crisis on which the world is still suffering? I think the answer to that is unambiguously no. Against that background there are solid grounds I think for examining, and this is where I do come to my proposal, the creation of a sovereign monetary system, as recommended by several expert commentators recently. Martin Wolff, who is everyone in this House will know as an influential chief economics commentator of the FT, wrote an article a few months ago on the 24th of April to be precise entitled, Strip private banks of their power to create money. This is a Martin Wolff recommending switching from bank-created debt to a nationalised money supply. Also, Lord Adair Turner, who was the former chair of the financial services authority, delivered a speech about 18 months ago in February 2013 discussing an alternative to quantitative easing which he turned overt money finance, which is also known as a form of sovereign money. Now such a system, and here I will describe its main outline, such a system would restrict the power to create all money to the state via the central bank. Changes to the rules governing how banks operate would still permit them to make loans, but would make it impossible for them to create new money in the process. The central bank would continue to follow the remit set by the Chancellor of Exchequer, which is currently to deliver price stability, which is defined at the present time as inflation target of 2%. The central bank would be exclusively responsible for creating as much new money as was necessary to support non-inflationary growth. Decisions on money creation will be taken independently of government by a newly formed monetary creation committee or by the existing monetary policy committee, either of which would be accountable to the Treasury Select Committee. I think that accountability to the House is crucial to this whole process. Now I conclude that I believe a sovereign monetary system offers a very considerable advantage over the present system. It would create a better and safer banking system because banks would have an incentive to take lower levels of risk since there would be no option of a bailout or rescue from taxpayers and thus moral hazard would be reduced. Second, it would increase economic stability because money creation by banks tends to be pro-cyclical, as I've explained, whereas money creation by the central bank would be counter-cyclical. Thirdly, sovereign money crucially supports the real economy when, under the current system, 83% of lending does not at the moment go into productive investment. I underline that three times. For all of these reasons, I believe that the examination of the merits of a sovereign monetary system is now urgently needed and I would call on the government to set up a commission on money and credit with particular reference to the potential benefits of sovereign money, which offers a way out of the continuing and worsening financial crises that have blighted this country and indeed the whole international economy for decades. This is an issue that has not been debated for well over a century and I think we wouldn't be having this debate if it wasn't for the fact that we are still in the midst of tumultuous times. We had the banking crash, we had the corresponding crash in confidence in the banking system and in the wider economy, and now we have a problem of underlending, partly as a consequence particularly to small and medium-sized business. So this could not be more important and the Member for, when I'm going to say, my noble friend, as we work on many issues together for Alderman Rointen, I pointed out at the beginning of his speech that this is an issue that is not well understood by members of the public. I think he mentioned later on his speech, but if he didn't, I'm going to add that this is an issue which is also not well understood by members of this House, by members of Parliament. I would include myself in that and I suspect most people here would be humble enough to recognise that this is such a complex issue, this banking wizardry we're discussing today, that very few people really properly understand it. If members of Parliament don't really understand how money is created, and I really believe that is the majority position, certainly based on discussions I have been having, how on earth can we be confident that the reforms we brought in over the course of the last few years are going to work? I'm going to prevent repeat-repeat-repeat collapse of the sort which we saw before the last election. My view is that we can't be confident. I think these issues need to be explored and I think it is time for a Monetary Commission to be established and for Parliament then to become much more engaged than we have been. This is a very small step in that direction. I'm very grateful to the sponsors of today's debate. This debate comes following a significant campaign by Positive Money who have been raising some extremely important issues about how we ensure financial stability or how we as parliamentarians and indeed how members of the public can gain a far greater understanding of the way in which our economy works and in particular how money is supplied. I'd also like to pay tribute to the hon. Member for Oldham for his good explanation of the Positive Money agenda, which is certainly an idea worthy of thought and I will come on to that. I want to start by saying that money creation is a very important and complex aspect of our economy that I do agree with members is very often misunderstood. But first, I just want to briefly set out why we don't believe that the right solution is the wholesale replacement of the current system by something else such as a sovereign monetary system. Under a sovereign monetary system it would be the state, not banks, creating new money. The central bank via a committee would decide how much money is created and this money would mostly be transferred to the government. Lending would come from the pool of customers investment account deposits held by commercial banks. Such a system would raise a number of very important questions. How would that committee assess how much money should be created to meet the inflation target and support the economy? If the central bank had the power to finance government's policies, what would the implications be for the credibility of the fiscal framework and the government's ability to borrow from the market if it needed to? What would be the impact on the availability of credit for businesses and households? Wouldn't credit become very pro-cyclical? Wouldn't we incentivise financing households over businesses because in the case of businesses banks would presumably expect the state to step in? Wouldn't we be encouraging the emergence of an unregulated set of new shadow banks? Wouldn't the introduction of a totally new system untested across modern advanced economies create unnecessary risk at a time when what people need is stability? So in conclusion, this government's belief is that the current system, modified and improved with far greater competition, is the one that will serve the economy best.