Over the last decades, the global monetary and financial systems changed considerably in response to technology, (de)regulation, and globalisation. Currently, what is considered by mainstream economics the bulk of the money supply [all money in (digital) bank accounts)] is created by private banks whenever they extend credit, whereas the state or a central bank only holds a monopoly over the creation of cash (coins and banknotes), which is dwindling in proportion. The result is a system out of control, which does not work in the public interest and causes the following problems:
- Unsustainable level of debt: Because most money is issued as bank credit, money and debt are closely interlinked. Therefore the system is more or less dependent on continuously growing bank credit which is unsustainable.
- Perpetual expansion: In order to service those large amounts of debt, the economy has to grow, even when markets are saturated and resources depleted (otherwise there would be recession and unemployment).
- Unfairness, monopolistic/unbalanced structures: The power to create money gives banks an unfair and damaging advantage over all other institutions and/or actors in the economy. How much money is created and where new money is spent is primarily determined by private banks on the basis of maximizing their own profits rather than the needs of the economy. With this double power of money creation and allocation they shape society.
- Inequality and the concentration of wealth: GDP-disproportionate growth of financial assets and debt results in a bias of the distribution of income and wealth in favour of financial income at the expense of earned income.
- Financial instability: Money creation by banks is pro-cyclical – too much in a boom and too little in a recession, causing pronounced boom-bust cycles. Also, the banking system is inherently unstable due to the problem of bank runs and requires extensive bailouts and guarantees in a crises to prevent a general meltdown of the economy.
- Anti-democratic: Because the government relies on commercial banks to create money, the government and the society have to borrow the money into existence and pay interest on the money supply to the banks. This means higher profits for the banks and higher taxes for the rest of us.
- Not transparent: When money is created by banks in connection to a loan it is not transparent to the public who is receiving the advantages of using the newly created money or how much of it there is in circulation.