Scotland take note
Warren Mosler Plan A + Plan B
Economist Warren Mosler describes his solution to the Italian / EU crisis in terms of Plan A and Plan B
The Common Weal needs to watch this over and over and over again.
Eskoziarentzako moneta berria
Setting up a Scottish currency It is our playbox so you play by our rules. So what does the playbox look like? A Functional finance playbox not a sound finance prison
2018 abu. 22
1) The central bank is constitutionally barred from dealing in the foreign exchange markets, and margin trading is banned.
2) Banks can only lend (create money) for the capital improvement of the country. Currency traders then know there will be no ‘patsy’ in the market and no leverage available to them, So they can’t attack anything. They would run out of liquidity. To sell the currency you have it.
3) No need for foreign currency in the central bank.The foreign currency, if any, is held by the government to allow it to make necessary purchases in an emergency. Most importantly it is never used to settle foreign financial liabilities.
4) Any entity that cannot service foreign financial liabilities goes bankrupt and the foreign debts are wiped out by bankruptcy. Creditors then get paid in the currency by selling the assets. The reason for that is when you bankrupt a foreign loan you destroy their money.
5) Banks would always be under threat of being placed in administration and their shareholders wiped out if they break the rules regarding the currency. That’s how you keep them in line. They’ll be no socialising the losses anymore if they want to retain thier licence.
6) You tell banks what they are allowed to do, and NOT what they are not allowed to do. When you tell banks what they are not allowed to do, they will always find something you forgot.
7) Bank lending is limited to public purpose, which means you cannot use financial assets as collateral. You can’t borrow against financial assets from the member banks. If somebody in the private sector wants to make a loan, that’s okay. But not the banks with insured deposits.
8) And lending is done by credit analysis and not market prices of the assets underneath. You must lend by credit analysis to serve public purpose.
9) You don’t need foreign money. Foreign firms need the custom of the Scottish people if they want to sell their stuff. They need to either take the output of Scotland, or hold the new currency. If they don’t then that creates space for import substitution.
10) You introduce capital controls on (FPI)Foreign Portfolio Investment which represents foreign investments in a nation’s financial assets which bear no interest in an underlying productive activity in the real sector of the economy.
11) Introuce a job guarentee to encourage (FDI) Foreign Direct Investment where a foreign investor provides funds to a productive enterprise in another nation
12) Never borrow in a foreign currency please see Turkey, Argentina and Venezula for details
13) You don’t actually stop using the £ you just start taxing in the new Scottish currency on a 1:1 basis. Then the Scottish government starts spending in the new currency This gives Scotland independent fiscal policy and independent monetary policy.
14) The most important thing is not to covert bank deposits from £’s to the new Scottish currency. If you convert everybody to the new Scottish currency those people who want £’s are very unhappy. So they sell the Scottish currency to get £’s dropping the exchange rate by 60%
15) If you don’t convert bank deposits everybody is happy. The people who have £’s who want the new currency. Have to sell their £’s and buy the new currency
16) The government can sell them the new currency at a slight premium to the £ say 1%. So now people can sell the £ and get the new currency they want which creates a strong stable currency that does not go down it goes up.
17) As the new currency goes up the government sells it keeping it constant. Which means the government is getting all of these £’s for people who want the new currency
18) We use that to pay off our new currency debt that helps it to get through the difficult transistion period without a collapse in currency. So it is important that you don’t force everybody to convert from £’s to the new Scottish currency.
19) All Bank Deposits including central bank deposits. You do not convert the UK bonds. They stay in £’s.
Governments should not issue debt under foreign law