We’ve recently jumped across this rather interesting series of videos on website called Positive Money, aiming to strip away the layers of mystery that surround the banking system and roll out the very core of bankmoney as a real-life operation.
A few key points are made:
*The general idea of how money operates is known as the Money Multiplier Model. This model describes bankmoney as a kind of imaginary, unfurling thrust of growth, rooted in a tight seabed of reality known as Reserve Ratios, and tempered by the fraught hands of the Central Bank, the only bank with the legal authority to print and create real money.
We each go to banks to deposit money safely and securely. However, banks need only retain a fraction of this money in the bank itself: this fraction is the Reserve Ratio. The rest can be loaned out and may find itself being spent in all kinds of wonderful ways. Some of it may eventually return to a bank to be saved once again…and is then lent out further, providing that tiny fraction, the Reserve Ratio, is still kept behind in the bank, as a measure of safety.
*The Money Multiplier Model is not entirely accurate: Reserve Ratios are not as significant as the model assumes and indeed, since 2006, the Bank of England has operated a reserve-ratio scheme that is only ‘voluntary‘. Banks also have the luxury of electronic money, and through this, are able to conjure and manipulate their very own money supply, independent of any Central Bank: this is described as the traumatic excess of the electronic banking screen, the pixelated figure that lies in front of us is often a mere fiction, a tale drafted by the typing fingers of corporate bureaucracy, rather than being grounded in a realm of real responsibility.
The correct model, it is suggested, is that of a Balloon. For money in today’s world is a space of fiction, a net of binary code, and the parameters of this space, be they contracting or expanding, are dependent upon confidence within the banking sector, other than anything else.
——
Is the Balloon Model more apt in describing the function of money in today’s economy? We’d like to know your thoughts.