Reply To: Another Bank in Crisis?
Actually, banking reformers (to be polite and not call them currency cranks) do propose to legislate to separate these two functions of a bank. There was even a referendum in Switzerland to do this a few years ago (it was voted down). Here’s what they proposed:
“The proposal is that banks should not be able to re-lend money deposited in current accounts. When it receives such a deposit the bank will be required to re-deposit it with the state’s central bank in return for what Sandhu calls ‘State e-money’. All banks would be able to do with this is transfer it between current accounts.
This would certainly restrict bank lending but it wouldn’t (and is not intended to) stop it altogether. As the Swiss banking reformers explained, after the enactment of their reform:
‘The banks can only work with money they have from savers, other banks or (if necessary) funds the central bank has lent them, or else money that they own themselves.’
But this is already, now, the case ! Money deposited in a current account is just as much a loan to the bank as is money deposited in a savings account. Banks can, and do, re-lend most of it too, except that, unlike with a savings account, it keeps all the interest. But if money re-lent from a current account is money created from thin air, why is money re-lent from a savings account not?”
If implemented, this would bugger up the financial system and impede banks from carrying out properly their function under capitalism of channelling idle money to those who want money to invest for profit.
We socialists understand better how capitalism works than some of its supporters.