Money System Design Options

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To design a money system that serves the ends and values of the New Economy, it is necessary to understand the crucial design choices that determine to whom money flows, for what purposes, and on what terms. These choices in turn determine the values and purposes the money system serves.

Market fundamentalists will argue that such decisions should be left to the market. This argument is disingenuous, because how the market allocates will be determined by design choices that are inherently political. Leaving these political choices to the market means they will be made by the market's most powerful players to further augment their power. This process led to the deregulation and mergers that set the stage for the financial crash of 2008.

The following are some of the important design options. Each individual choice is fairly simple. In combination, however, the possibilities and their implications become mind numbingly complex.

  • Should official money originate as bank debt or direct government issue?
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  • Should the power to originate money be centralized or decentralized?
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  • Should a nation have one currency or many?
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  • Should financial institutions be operated for public or for private benefit?
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  • Should the money system be regulated or left to market forces?
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The more the power to create money is centralized and concentrated, the lower the level of public accountability and the greater the potential for abuse. This dynamic is all the stronger when money creation powers are monopolized by private banks accountable only to private shareholders and operated for pure private-benefit. The more decentralized, distributed, and transparent the power to create and allocate money, the more democratic and equitable the society. It is virtually impossible to have either a functioning democracy or an equitable distribution of wealth when money creation powers are centralized and monopolized by nontransparent, private, for-profit institutions managed for purely private gain, as is currently the case for the U.S. money system. [See Debt Money vs. Government Issue Trade Offs]

Democratic accountability can be increased and monopoly control can be avoided by decentralizing the banking system and diversifying ownership among for-profit, non-profit, cooperative, and government banks as outlined in An Action Agenda.

The complexity of the options defies categorical solutions. An open national debate in search of reforms that move toward greater transparency, accountability, diversification, and local control in the public interest is long overdue.