Photo by Images_of_Money
A Dods Monitoring poll commissioned by Positive Money asked 100 parliamentarians whether the statement “Only the government – via the Bank of England or Royal Mint – has the authority to create money, including coins, notes and the electronic money in your bank account,” was true or false. 71% of the MPs erroneously thought the statement was true.
In fact, the government only has the ability to create coins and notes, which make up just 3% of the money supply. The other 97% is created digitally by banks when issuing loans.
They were also asked to answer true or false to the statement “New money is created when banks make loans, and existing money is destroyed when members of the public repay loans.” To this, just 12% gave the correct answer (it’s true), whilst 64% thought it was false. The results were evenly spread across the parties represented in Westminster.
A Bank of England paper released earlier this year explained the reality of money creation: “[The] majority of money in the modern economy is created by commercial banks making loans.
“When a bank makes a loan, for example to someone taking out a mortgage to buy a house, it does not typically do so by giving them thousands of pounds worth of banknotes. Instead, it credits their bank account with a bank deposit of the size of the mortgage. At that moment, new money is created. …
“Just as taking out a new loan creates money, the repayment of bank loans destroys money.”
Commenting on the results, Ben Dyson, founder of Positive Money, said: “MPs have no chance of understanding the house price bubble unless they know these basic facts about money. The financial crisis was caused by banks that created too much money and lent it recklessly. We’re now in danger of repeating the same mistakes.”
Positive Money is a campaigning group based in London. On its website it describes itself as “a movement to democratise money and banking so that it works for society and not against it.”
The Office for National Statistics calculated public debt in Britain to stand at £1,304.6 billion as of the end of June 2014, equivalent to 77.3% of GDP. However, that excludes liabilities such as future pensions payments. Other organisations have estimated the debt to be much higher, with the Taxpayers’ Alliance giving a figure of £7.9 trillion in 2009-10. Although the deficit has been reduced by the government since then, the debt has doubled in that time. But considering that hardly any of our Parliamentarians actually understand how money works, why are any of us surprised? It would be interesting to know how the Ukip MEPs would fare with these questions.