Reinventing Banking: From Russia to Iceland to Ecuador

Global developments in finance and geopolitics are prompting a rethinking of the structure of banking and of the nature of money itself. Among other interesting news items:

  • In Russia, vulnerability to Western sanctions has led to proposals for a banking system that is not only independent of the West but is based on different design principles.
  • In Iceland, the booms and busts culminating in the banking crisis of 2008-09 have prompted lawmakers to consider a plan to remove the power to create money from private banks.
  • In Ireland, Iceland and the UK, a recession-induced shortage of local credit has prompted proposals for a system of public interest banks on the model of the Sparkassen of Germany.
  • In Ecuador, the central bank is responding to a shortage of US dollars (the official Ecuadorian currency) by issuing digital dollars through accounts to which everyone has access, effectively making it a bank of the people.

Developments in Russia

In a November 2015 article titled “Russia Debates Unorthodox Orthodox Financial Alternative,” William Engdahl writes:

A significant debate is underway in Russia since imposition of western financial sanctions on Russian banks and corporations in 2014. It’s about a proposal presented by the Moscow Patriarchate of the Orthodox Church. The proposal, which resembles Islamic interest-free banking models in many respects, was first unveiled in December 2014 at the depth of the Ruble crisis and oil price free-fall. This August the idea received a huge boost from the endorsement of the Russian Chamber of Commerce and Industry. It could change history for the better depending on what is done and where it further leads.

Engdahl notes that the financial sanctions launched by the US Treasury in 2014 have forced a critical rethinking among Russian intellectuals and officials. Like China, Russia has developed an internal Russian version of SWIFT Interbank payments; and it is now considering a plan to restructure Russia’s banking system. Engdahl writes:

Much as with Islamic banking models that ban usury, the Orthodox Financial System would not allow interest charges on loans. Participants of the system share risks, profits and losses. Speculative behavior is prohibited . . . . There would be a new low-risk bank or credit organization that controls all transactions, and investment funds or companies that source investors and mediate project financing. . . . Priority would be ensuring financing of the real sector of the economy . . . .

On September 15, 2013, Sergei Glazyev, one of Vladimir Putin’s economic advisers, presented a  a series of economic proposals to the Presidential Russian Security Council that also suggest radical change is on the horizon. The plan is aimed at reducing vulnerability to western sanctions and achieving long-term growth and economic sovereignty.

Particularly interesting is a proposal to provide targeted lending for businesses and industries by providing them with low-interest loans at 1-4 percent, financed through the central bank with quantitative easing (digital money creation). The proposal is to issue 20 trillion rubles for this purpose over a five year period. Using quantitative easing for economic development mirrors the proposal of UK Labour Leader Jeremy Corbyn for “quantitative easing for people.”

William Engdahl concludes that Russia is in “a fascinating process of rethinking every aspect of her national economic survival because of the reality of the western attacks,” one that “could produce a very healthy transformation away from the deadly defects” of the current banking model.

Iceland’s Radical Money Plan

Iceland, too, is looking at a radical transformation of its money system, after suffering the crushing boom/bust cycle of the private banking model that bankrupted its largest banks in 2008. According to a March 2015 article in the UK Telegraph:

Iceland’s government is considering a revolutionary monetary proposal – removing the power of commercial banks to create money and handing it to the central bank. The proposal, which would be a turnaround in the history of modern finance, was part of a report written by a lawmaker from the ruling centrist Progress Party, Frosti Sigurjonsson, entitled “A better monetary system for Iceland”.

“The findings will be an important contribution to the upcoming discussion, here and elsewhere, on money creation and monetary policy,” Prime Minister Sigmundur David Gunnlaugsson said. The report, commissioned by the premier, is aimed at putting an end to a monetary system in place through a slew of financial crises, including the latest one in 2008.

Under this “Sovereign Money” proposal, the country’s central bank would become the only creator of money. Banks would continue to manage accounts and payments and would serve as intermediaries between savers and lenders. The proposal is a variant of the Chicago Plan promoted by Kumhof and Benes of the IMF.

Public Banking Initiatives in Iceland, Ireland and the UK

A major concern with stripping private banks of the power to create money as deposits when they make loans is that it will seriously reduce the availability of credit in an already sluggish economy. One solution is to make the banks, or some of them, public institutions. They would still be creating money when they made loans, but it would be as agents of the government; and the profits would be available for public use, on the model of the US Bank of North Dakota and the German Sparkassen (public savings banks).

In Ireland, three political parties – Sinn Fein, the Green Party and Renua Ireland (a new party) — are now supporting initiatives for a network of local publicly-owned banks on the Sparkassen model. In the UK, the New Economy Foundation (NEF) is proposing that the failed Royal Bank of Scotland be transformed into a network of public interest banks on that model. And in Iceland, public banking is part of the platform of a new political party called the Dawn Party.

Ecuador’s Dinero Electronico: A National Digital Currency

So far, these banking overhauls are just proposals; but in Ecuador, radical transformation of the banking system is under way.

Ever since 2000, when Ecuador agreed to use the US dollar as its official legal tender, it has had to ship boatloads of paper dollars into the country just to conduct trade. In order to “seek efficiency in payment systems [and] to promote and contribute to the economic stability of the country,” the government of President Rafael Correa has therefore established the world’s first national digitally-issued currency.

Unlike Bitcoin and similar private crypto-currencies (which have been outlawed in the country), Ecuador’s dinero electronico is operated and backed by the government. The Ecuadorian digital currency is less like Bitcoin than like M-Pesa, a private mobile phone-based money transfer service started by Vodafone, which has generated a “mobile money” revolution in Kenya.

Western central banks issue digital currency for the use of commercial banks in their reserve accounts, but it is not available to the public. In Ecuador, any qualifying person can have an account at the central bank; and opening one is as easy as walking into a participating financial institution and exchanging paper money for electronic money stored on their smartphones.

Ecuador’s banks and other financial institutions were ordered in May 2015 to adopt the digital payment system within the next year, making them “macro-agents” of the Electric Currency System.

According to a National Assembly statement:

Electronic money will stimulate the economy; it will be possible to attract more Ecuadorian citizens, especially those who do not have checking or savings accounts and credit cards alone. The electronic currency will be backed by the assets of the Central Bank of Ecuador.

That means there is no fear of the bank going bankrupt or of bank runs or bail-ins. Nor can the digital currency be devalued by speculative short selling. The government has declared that these are digital US dollars trading at 1 to 1 – take it or leave it – and the people are taking it. According to an October 2015 article titled “Ecuador’s Digital Currency Is Winning Hearts!”, the currency is actually taking the country by storm; and other countries in Latin America and Africa are not far behind.

The president of the Ecuadorian Association of Private Banks observes that the digital currency could be used to finance the public debt. However, the government has insisted that this will not be done. According to an economist at Ecuador’s central bank:

We did it from the government because we wanted it to be a democratic product. In any other countries, [digital currency] is provided by private companies, and it is expensive. There are barriers to entry, like [expensive fees] if you transfer money from one cellphone operator to another. What we have here is something everyone can use regardless of the operator they are using.

Banking Moves into the 21st Century

The catastrophic failures of the Western banking system mandate a new vision. These transformations, current and proposed, are constructive steps toward streamlining the banking system, eliminating the risks that have devastated individuals and governments, democratizing money, and promoting sustainable and prosperous economies.

They also raise some provocative questions:

  • Would issuing “quantitative easing” to the tune of 20 trillion rubles for Russian development and trade trigger hyperinflation?
  • Could merging the Iceland version of the Chicago Plan with a public banking initiative return the power to create money to the public without collapsing credit?
  • How does the Ecuadorian national digital currency mesh with the “war on cash” underway in Europe?

These and related questions will be explored in later articles. Stay tuned.

________________

Ellen Brown is an attorney, founder of the Public Banking Institute, and author of twelve books including the best-selling Web of Debt. Her latest book, The Public Bank Solution, explores successful public banking models historically and globally. Her 300+ blog articles are at EllenBrown.com. Listen to “It’s Our Money with Ellen Brown” on PRN.FM.

49 Responses

  1. I love you Ellen

  2. Really interesting developments!
    Nice blog post.I had not heard what was going on in Russia and Ecuador.Those are unique developments.

  3. President Kennedy wanted to reform the American Monetary system, by issuing Executive order 11110, for the government to issue money. He was assassinated soon afterwards, by those who had too much to lose………………

    • Just as an observation, Kennedy’s executive order came about while the gold price still had a fixed peg to the USD @ $35/oz. The gold price was not set free to float until 1971.

      • Dear Dr. Brown,I like the system described by you. As a person with a low level knowledge on the financial system I ask you a question that come to my mind. Is it possible that the elimination of tangible currency may rest too much power on the hands of few and therefore creating a tyrannical power? Thank you for your attention, and I believe your public banking solution for this big problem is the correct one.

      • “Jeff” what has you comment got to do with my comment about JFK wanting the government to issue U.S. currency?

  4. thank God that several other authors think the same way!!!!!!!
    I abound and quote your works in my book, a 680 page study

    title :
    CAPITALlessISM, a MACRO-MODEL for a NATIONAL ECONOMY,
    by Dr. Anthony Horvath

    So how could we reverse the crisis?

    By financing the economy

     ==> using a new concept: with a NATIONALIZED artificial capital creation process, called “FRACTIONAL RESERVE BANKING’’ rights, then FRANCHISING it back to the BANKS… thus eliminating income taxes
     ==> using a PUBLIC-PRIVATE COOPERATIVE BANKING NETWORK PARTNERSHIP UNDER GOVERNMENT COORDINATION

     ==> REEVALUATING OR CHALLENGING THE VALIDITY OF NATIONAL DEBTS ON LEGAL GROUNDS

    all explained in my book ….. I would be happy to publish on your site

    • Interesting! That’s my vision as well. It’s also Scott Smith’s, the presidential candidate I just interviewed. See previous post. Thanks!

  5. A new system of money creation is definitely needed.
    Please.go for it.

  6. The only hope is for the citizens to demand their governments nationalize ALL banks, return the creation of credit into governments hands alone, and destroy private ownership of the stock exchange and all other financial corporations.
    Get back to basics.

  7. […] https://ellenbrown.com/2015/12/11/reinventing-banking-developments-in-russia-iceland-the-uk-and-ecuad… […]

  8. the Grameen Bank tried micro-finance loans but was squelched by Wall st. people in all countries need low interest loans from small,highly-regulated banks; useing asset-backed currencies, not monopoly-money quantitative easing,make-believe paper. Private Central Banks must not create currency out of thin air. Casino banks,funds etc must gamble with their own and willing and fully-informed client`s money.they must suck up their losses and be prosecuted for fraud.No minimal fines.Stolen money must be fully recovered and large,punitive penalties exacted. Fines should be at least 50% of profits.

    • Anthony … If you dig a little deeper into the rabbit hole, you may see that debt is not the problem. Excessive debt that is totally unmanageable is the problem. The addition of asset based currency which is debt free is like adding a much needed yang (debt-free liquidity) into a system that is almost all yin (debt based liquidity) at this moment. The true evil is in the imbalance.

      What emerges is a hybrid that allows for a symbiotic relationship where debt can be withdrawn from circulation while enhancing liquidity, all because of the asset “supplementation”

      Just add assets , simmer and stir. The market will provide the much wanted symbiosis, a process of market osmosis. No government process required ….. besides, they already set that stage. 😉

      • dear Dan…. from Dr. Anthony Horvath, author of CAPITALlessISM….. http://authorwebservices-xl.net/US/551003/ …..-1- the present private banking structure has to evolve into a Public-Private banking system… in harmony… -2- the present artificial capital creation process under private banks control, must become a public property licensed back to them. -3- the size of National debts must be reevaluated under certain new legalities. -4- Economy work with only with people in mind… the HUMAN FACTOR …. -5- Durable economic reforms may be achieved only peacefully with a certain elusive god-factor … without revolutions.

  9. The current monetary system have a few basic rules and in part is based on one of the seven capital sin (Greed) Changing this old flawed system is by it self a good proposition, but I would like to call the attention on the people involved in this monumental social change to study a currency system that will not trigger that negative sin in order for all the people to use the eventual new currency system with wisdom, and free from all the pitfall created by the will to have more to spend more and spiraling in to a never ending terrible situation. Many of you will call me a dreamer, but just like John Lennon in his famous song said “I am not the only one”

  10. As I write this there are 13 ‘thumbs down’ and zero ‘thumbs up’ to the 10 responses, all of which endorse changes being made to the current monetary system, which seems quite unusual.
    Is this site being targeted by ‘those who would lose if the system was changed’?

    • Interesting! I’ve also noticed a lot of troll-like activity on this blog. I just went through and added some thumbs up for balance. Thanks.

  11. […] Source: WEB OF DEBT BLOG Global developments in finance and geopolitics are prompting a rethinking of the structure of banking and of the nature of money itself. Among other interesting news items: In Russia, vulnerability to Western sanctions has led to proposals for a banking system that is not only independent of the West butRead more… […]

  12. […] Ellen Brown Global Research, December 12, 2015 EllenBrown.com 11 December […]

  13. Reblogged this on The Most Revolutionary Act and commented:
    *
    *
    Iceland moves to ban private banks from creating money out of thin air. Russia, Ireland, Britain and Ecuador move to limit their monopoly over the money supply. Contrary to popular perception, 95% of the global money supply is created by private banks as loans.

  14. […] Posted on December 11, 2015 by Ellen Brown, Web of Debt Blog […]

  15. […] Source: WEB OF DEBT BLOG, by Ellen Brown […]

  16. http://mixlr.com/mn-rob/showreel/2015-12-11-is-mpls-fed-getting-ready-to-greece-no-dak/

  17. CAPITALlessISM, a MACRO-MODEL for a NATIONAL E-CONOMY,
    by Dr. Anthony Horvath a 680 page study http://www.capitallessism (goggle)

    Ecuador’s National Digital Currency system is the future model for a stable national E-CONOMY under a NATIONAL PUBLIC BANKING, where presently foreign bank controlled currency supply dominate the fluctuating trade. To insure stability (where there is a balance between production capacity and the survival consumerism capacity) the money supply has to be nationally created, distributed, its circulation monitored with precision in order to sustain balance. In our book, we envisioned the creation of such an E-conomy, i.e. a national electronic currency supply consisting of CMMs, Currency Movement Monitoring system, ‘BIT-BILL®, E-cash, E-bank concepts, E-cash, E-wallet, and piracy-proof virtual currency designs. The goal is to create an adequate currency supply, to stimulate its circulation, and to monitor its usage … and also to discourage counterfeiting and corruption

    • Dr. Anthony …. why is it that the money supply has to be nationally created ? Why can’t the market participate in creating money supply that is of an asset origin and debt-free ?

      • You obviously haven’t read Web of Debt.

        • Actually, I did. I saw no good argument for why debt-free currency could not be created and governed by the market.

      • thank you for your very interesting question, …. national control over money supply creation should be a national process vs a privatized priviledge SOLELY UNDER the jurisdiction of private banks.
        For two simple reasons :

        -1- First, that governments, at least in principle, have an OVERALL assessment of the GLOBAL CAPITAL needs of the people, institutions and enterprises, while ”market interests” have only a FRACTIONAL view of these same needs. Consequently, governments must also have the corresponding OVERALL CAPITAL CREATION CAPACITY to sustain these needs in a nation. On the other hand, since ”market assessment of these same needs” are only a FRACTIONAL view of global human needs, (because they are biased by private interests from their own profitability perspective), they should also have at best, only a FRACTIONAL CAPITAL CREATION CAPACITY along with democratic governments. While profit perspectives are most important in a free enterprise society, they are nevertheless useless to determine the capital needs of non-profit oriented services.

        -2- The second reason is that asset-based credit creation process is too restricitive. It presupposes that marketable assets exist already on which to consent a credit i.e. for new-capital. So in the absence of sufficient assets, it becomes too restrictive to the full development potential of those projects that cannot show an asset to obtain capital. So, because sufficient e-capital cannot be created by the traditional asset based ”market-oriented” virtual capital creation process we need innovative E-CAPITAL CREATIONS DESCRIBED IN OUR BOOK: CAPITAL-less-ISM, a MACRO-MODEL for a NATIONAL E-CONOMY.

        this is why we suggest a NATIONAL FRACTIONAL RESERVE BANKING PROCESS, FRANCHISED TO PRIVATE BANKS BY GOVERNMENTS, under the jurisdiction of NATIONAL PUBLIC BANKS.
        thank you for comments

        • Dr. Anthony …. Where did you ever get the idea that asset based currency is too restrictive ? How can that statement be justified ?

          • Dear Lise …..thank you….. from Dr. Anthony Horvath, author of CAPITALlessISM.. http://authorwebservices-xl.net/US/551003/

            Originally, currency creation processes were based on gold reserves. i.e. the amount of currency issued were limited (restricted) by gold assets. i.e. the paper currency was equivalent to the gold reserves. Since this proved insufficient to produce enough ‘’paper’’ capital to sustain the war efforts of opposing nations, the concept of fractional reserve banking was introduced by banks in order to issue much more paper/credit capital than covered by the gold reserves. (… presently over 100 new virtual artificial dollars are issued for each one in the reserve…). But, today this process is still insufficient to cover the hyper-exponentially growing development-capital needs of the exponentially growing world population. This is a MATHEMATICAL EVIDENCE … so emerging nations need new capital creation concepts, instead of begging foreign investors for no-existent capital. So, ‘’asset based currency creation’’ seems to be outdated.

            Consequently, we recommend in our book CAPITALlessISM ….that -1- the present private banking structure has to evolve into a Public-Private banking system… in harmony(not nationalized as leftists advocate) -2- the present artificial capital creation process under private banks’ control, must become a public property licensed back to them. So the new virtual-capital created should be a commodity based and a production potential based (not gold-reserve based) NATIONAL property -3- the size of National debts must be re-evaluated under certain new legalities. -4- Economy can work only with people and family needs in mind… the HUMAN FACTOR …. -5- DURABLE economic reforms can be achieved only PEACEFULLY with a certain elusive god-factor … without revolutions and the present RADICALIZATION TENDENCY.
            thank you for your comments

      • thank you Lise, for your very interesting question, …. national control over money supply creation should be a national process vs a privatized priviledge SOLELY UNDER the jurisdiction of private banks.
        For two simple reasons :

        -1- First, that governments, at least in principle, have an OVERALL assessment of the GLOBAL CAPITAL needs of the people, institutions and enterprises, while ”market interests” have only a FRACTIONAL view of these same needs. Consequently, governments must also have the corresponding OVERALL CAPITAL CREATION CAPACITY to sustain these needs in a nation. On the other hand, since ”market assessment of these same needs” are only a FRACTIONAL view of global human needs, (because they are biased by private interests from their own profitability perspective), they should also have at best, only a FRACTIONAL CAPITAL CREATION CAPACITY along with democratic governments. While profit perspectives are most important in a free enterprise society, they are nevertheless useless to determine the capital needs of non-profit oriented services.

        -2- The second reason is that asset-based credit creation process is too restricitive. It presupposes that marketable assets exist already on which to consent a credit i.e. for new-capital. So in the absence of sufficient assets, it becomes too restrictive to the full development potential of those projects that cannot show an asset to obtain capital. So, because sufficient e-capital cannot be created by the traditional asset based ”market-oriented” virtual capital creation process we need innovative E-CAPITAL CREATIONS DESCRIBED IN OUR BOOK: CAPITAL-less-ISM, a MACRO-MODEL for a NATIONAL E-CONOMY.
        this is why we suggest a NATIONAL FRACTIONAL RESERVE BANKING PROCESS, FRANCHISED TO PRIVATE BANKS BY GOVERNMENTS, under the jurisdiction of NATIONAL PUBLIC BANKS.
        thank you for comments

  18. […] https://ellenbrown.com/2015/12/11/reinventing-banking-developments-in-russia-iceland-the-uk-and-ecuad… […]

  19. Yes, I think surrendering 100% control of you life and livelihood to the thoughtful planing of the banks and government, administered electronically, is a fine plan.

    Just keep in mind that your economic health well being is totally dependent upon maintaining the health and well being of the banks and government, and everything will be just fine….

  20. […] ELLEN BROWN, author of The Web of Debt, writes: […]

  21. […] Reinventing Banking: From Russia to Iceland to Ecuador […]

  22. Reblogged this on An Outsider's Sojourn II.

  23. […] This square initial seemed during Web of Debt. […]

  24. […] Ellen Brown skriver i sin senaste artikel om hoppfulla initiativ på olika håll i världen – Reinventing Banking: From Russia to Iceland to Ecuador […]

  25. […] Fonte: https://ellenbrown.com/ […]

  26. […] Fonte: https://ellenbrown.com/ […]

  27. […] ⇧   Reinventing Banking: From Russia to Iceland to Ecuador | WEB OF DEBT BLOG […]

  28. […] Fonte: https://ellenbrown.com/ […]

  29. […] Source: WoD […]

  30. […] https://ellenbrown.com/2015/12/11/reinventing-banking-developments-in-russia-iceland-the-uk-and-ecuad… […]

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