In February 2014 I interviewed Don Richards of Positive Money in Wellington for the syndicated Steve Hart Radio Show.
The Positive Money campaign began in the UK post GFC and campaigns to take money creation away from the banks and place it with the Reserve Bank.
The Reserve Bank creates New Zealand’s coins and notes interest free (the same system is used the world over).
Banks use a system called Fractional Reserve Banking to lend out the money in its vaults many times over. Every dollar in the vault can be lent out many many times over. In essence; banks lend out money it doesn’t have – some critics call it counterfeiting.
When a bank makes a loan it literally types the loan amount into your account. You spend it (say on buying a home); and once the loan is paid back the bank keeps the interest it charged you and deletes the original loan amount.
The idea that people only borrow money from savers via a bank is no longer the case.
The problem with banks charging interest on money that doesn’t really exist is that all loans can never be paid off without taking 98% of ‘money’ (digital money) out of the system.
If the Reserve Bank could create interest free money (which it can) then that money can be used for public services (roads, schools, poverty reduction etc) without the government borrowing money from the banks and using taxpayers’ cash to pay interest to the banks. The only people who would lose would be the banks; they’d still survive but not make quite as much profit.
Listen to the full interview with Don Richards (remember it was recorded in 2014).