On June 10th, Swiss voters took to the polls to decide whether the country should switch to a so-called sovereign money system. Those supporting the measure felt it would make the financial system safer by preventing bankers from recklessly lending and putting people’s savings at risk—again.
This brings to light an issue that is rarely talked about in the U.S.: what is money’s primary role, and is it being fulfilled?
Think about what money is and why we have it. Valueless in and of itself, money exists to serve as an instrument of the economy, facilitating transactions and the activities of those who engage in them. Yet in practice, this is not always the case. Money as a means has become an end in and of itself. For the most part, money does not serve people; rather, we have all become servants to money. Instability is shaking not only financial markets, but the whole global economy; and inequality has reached devastating levels. The system is broken.
At the heart of the problem lies the current design of the Fed. As America’s central bank, the Fed is the single most influential institution in the monetary and financial system. Its policies and decisions can change the course of the economic cycle and politics in general. A 1 percent drop in inflation can increase the fortune of the wealthy by billions; a 1 percent rise in the unemployment rate can lead to the misery of millions.
That’s quite a powerful impact. Yet, unlike with other institutions such as the presidency, congress, the senate and mayors’ offices whose every move has high-stakes consequences, the Fed is not run by democratically appointed leaders. Instead, each of the seven members of its Board of Governors is appointed by the President of the United States and confirmed by the U.S. Senate. The chairman is then chosen by the president from among the members of the Board of Governors.
Is this elitist structure of the Fed truly in the interest of the people? Does this organizational structure ensure that the Fed—and money itself—serve the citizens?
Like highways, bridges and schools, money is an essential form of infrastructure. Just as highways facilitate transportation, money is a public good that serves as an instrument of the economy. Its primary role is to facilitate transactions and the activities of those who engage in them. Thus, it would be far more logical for the Fed to be an entirely public institution, created and run by citizens themselves, and directly mandated by them.
This idea might fly in the face of the rationale for having created an independent Fed in the first place: that independence would help protect the Fed from day-to-day political pressures in fulfilling its various roles. Yet in today’s environment, what decision is truly neutral? Look, for example, at the the Bank of England. In 2008, at the onset of the Great Recession, the quantitative easing policy it chose to stimulate the economy was to purchase troubled assets from institutional investors. This benefited only 5% of the overall population. Indeed, politics and finance have become intrinsically linked.
It’s time to fix the system. In order for money to truly serve people everywhere and protect them from the harm of excessive inequality, we need to rethink the Fed and consider putting it, its branches and central banks across the globe back in the hands of citizens by:
- Converting central banks into fully public institutions in all countries.
- Letting citizens define its goals and tasks.
- Choosing the Feds leaders and the members of its governing bodies through a democratic appointment process.
- Creating an governing advisory board comprised of stakeholders from all sectors of society. Sweden’s Central Rikesbank has procedures in place for communication with all relevant stakeholders. This is an interesting model, and a good starting point.
Crucially, the Fed and other central banks must also fix the harmful paradox of electronic money. Central banks were created to issue currency and control its circulation, thus stabilizing the monetary system. Today, most of the money used for payments is not cash, but electronic money. Electronic money is created by commercial banks, not central banks. The profit it generates goes straight into the coffers of private banks, benefitting above all their bottom line. If the Fed and other central banks were to become the sole issuers of electronic money as they are with cash, the profit from money creation would benefit the general public. Public and private debt could be reduced significantly.
Voters in Switzerland ultimately rejected the Sovereign Money referendum by a 75% landslide although almost 90% disagree with the private banks role in issuing electronic money!
Needless to say, leaders of The Swiss National Bank (the central bank) and finance industry who had heavily campaigned against the reform, were relieved. Still, the initiative demonstrates that frustration levels with the current broken system and the are reaching a critical mass and invites us all to seriously consider the need for change.
Christian Felber is founder of the The Economy For The Common Good based in Austria, a movement uniting over 10,000 supporters in 40 nations and backed by 2,000 companies whose mission is to eliminate the fundamental contradiction between business’ values and social well-being. He is the author of 15 books, including, most recently, Change Everything: Creating an Economy For The Common Good (Zed Books-UK, 2015; distributed in the U.S. by the University of Chicago Press). His book Money: The New Rules of The Game was awarded the 2014 getAbstract International Book Award. An internationally renowned speaker, Christian has given TEDx talks in Brussels and Vienna, and has addressed the European Economic and Social Committee as well as the U.K.’s Royal Society For the Arts. He is an adjunct lecturer at the Vienna University of Economics and Business and is also a modern dancer.