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Who creates money and why
anandi sharan


Anandi Sharan

anandi sharanGovernment must control the creation of electronic money (credit), not as debt but as money spent into circulation to support every citizen, woman and child

I have written on this subject many times before, and though I am no expert I have been investigating for some time the question of who creates money and how and why.

Money is something that interests us all, especially when under capitalism companies such as the Coca Cola can get away with murder.

After some research over the years I found that the reason corporations are so powerful is that they are the conduit for channeling money not only into national economies but into the entire global economy. The system is that they who have the standing with banks can borrow money, and banks have by convention – because no one questions it – the legal right to create money out of thin air through loans to give to those who they think might repay it with interest.

The difference between public banks and private banks in this regard is that if it is a loan from a public bank the government can borrow money from somewhere else and get bad loans of public banks written off somewhere else – not even by co-opting public savings but by asking the RBI to cancel the debts that the government incurred for refinancing the public banks. Through these means the loans from public banks, if they are managed responsibly by a government through the RBI, may not hang around for years as a dead weight around the economy.

On the other hand, loans from private banks turn into cyclones of destruction as the private banks go around the world refinancing themselves, buying and selling loans and debts to keep gathering interest repayments and keep themselves in business. They also refuse to cancel debts, thus causing millions to commit suicide.

Another serious negative aspect of money creation by private banks as loans is that corporations are then considered so important to an economy that laws are designed specifically to allow them to get away with murder, environmental destruction, human rights violations, violation of labour standards if there are any, and so on.

To cut a long story short, the system of financing in this world in which money creation is based on debt is not quite so bad when it is public banks and governments that create money through debt – provided always, of course, they create money for the right things and cancel debts if the borrower is suffering, and so on – but it is very destructive when private banks create the money of this world, and this system is becoming more and more the dominant one even in India.

This entire arrangement however could be different. It is not written in stone. It is enforced daily by governments, corporations, banks and legal systems, but it is not necessarily constitutional. Indeed I think it could be challenged under the constitution as being unconstitutional. Under the constitution, SEVENTH SCHEDULE Article 246 List I—Union List, the following are the business of the Union:

35. Public debt of the Union

36. Currency, coinage and legal tender; foreign exchange

37. Foreign loans

38. Reserve Bank of India

39. Post Office Savings Bank

40. Lotteries organised by the Government of India or the Government of a State are under the sovereign control of the Union.

If legal tender is under Union sovereign power, why has the power to create electronic money been given to various banks which were invented to lend, and not kept with currency and notes in the hands of the mint? Why not reorganize the Reserve Bank of India and call it Currency Department, so that money is not created as debt at all?

The more one looks into it, the more one realises that it is only the Brahminical interest of the upper castes that keeps currency, coinage, legal tender – that so obviously includes electronic money – in the hands of banks. That keeps, in other words, the power to create electronic money in the hands of banks as debt issued by banks, whether public or private.

Why do private banks have the right to decide how much money should be circulating in the country and through whom and why should they have the right to charge interest for money circulating in the economy? And why should ICICI, HDFC and the other huge private banks become so dominant; and all that is left in the hands of government are coins, that today are the last form of debt free money in the country?

Why should electronic money not be debt free like coins and notes? Even if we have public banks why the necessity to create all money, even government money as debt, through bonds and so on?

The trouble is this government is wholly and completely beholden to foreign banks, foreign governments, foreign trade, and foreign military alliances, without which the Brahmins running this government think India would cease to be.

For Brahmins it is not the people who should interpret, live by, enforce, derive the rights and duties from the constitution, but corporations: people are just cannon fodder for the ensuing hurricane of destruction.

As a humanist I find the way that the constitutions of this world have been usurped by trade, banks and governments – who are beholden to the workers and shareholders of multinational companies and banks – very upsetting.

Would it not be better that an accountable government creates money through its control over currency and legal tender to pay into the pockets of its citizens who then have their own money circulating, and can maintain their families and animals, plant trees, conserve wild animals and plants, maintain water ways and groundwater levels, harvest rainwater, dig ponds, and restore our degraded environment?

If there is too much money circulating and there is inflation, it can simply be taxed and saved or even liquidated and no harm is done.

The new system thus should be that the government creates money, then gives most of it to the citizens to spend on maintaining the family, animals, the environment and culture and society, as Ambedkar intended, when he quoted: “Regarding the existence of capital Mr. Elliot James says:”The ryots have a keen eye to the results of a good system of farming as exhibited on model farms, but they cannot derive much good from the knowledge though they may take it in and thoroughly understand that superior tillage and proper manuring mean a greater outturn in crops. Their great want is capital” (Ref 1).

The government can also give a large part of the money as debt-free money to small manufacturers and other small entrepreneurs. Just a few few public banks or cooperative banks and so on can be retained to lend out for businesses that the citizen think should borrow and repay money rather than just using it. These will be mainly foreign traders. Foreign trade can be financed by creating some money just for foreign trade, doled out judiciously to those traders the citizens through referendums think are genuinely trading in the national interest.

It is very important that India, in other words, becomes a democratic, secular and socialist country again.

I am so hugely disappointed that there are no sane economists joining hands with scheduled caste and scheduled tribe activists and humanist politicians and women, to make new laws regarding money, at least in India. And then from India the new approach can spread across the rest of the world. And before the rest of the world adopts the new system we at least will be saved from dependence on foreign loan-based corporate money.We will free ourselves from their activities that today count as “work” but are actually anti-work, let alone anti-human.

Believe it or not, in Switzerland the 3 or 4 million voters will be voting on whether or not such a new system of money should be adopted (Ref 2). Of course the citizens there are so brainwashed they will reject the suggestion in the referendum. They are scared of what will happen to their jobs if corporations and banks loose their power.

But in India we should think about it and find a way to challenge the present unequal system of money through the courts and through politics as there are many more citizens in India than in Switzerland who have a direct stake in overturning the present system that create so much suffering. Starting with India’s money system, we must get into power and pass new laws to make it financially possible for all the arms of the state from the citizen to the gram sabha to the states and the Union to uphold the constitution in all its aspects.



(1) –
In this article Ambedkar concludes that “there is danger of too much agriculture in India”, which I disagree with. I think there is a danger of too little and the wrong kind of capital, that is to say money, as I argued above. One may need to understand that the article was written at a time when the knowledge of the impacts of the extraction and use of fossil fuels was not yet widely known. Today the question is how to meet the needs of all the people for safe home, livelihood, jobs, social and cultural harmony without damaging the foundations of the life systems on earth. I will write about this in the future.




Anandi Sharan is an environmental activist based in Bangalore. She was at one time running an NGO funded by the United Nations Framework Convention on Climate Change Clean Development Mechanism to pay for biogas plants in Kolar District and some Photovoltaic Lights in Tumkur District. Now she is a volunteer for certain causes including trying to get the Plachimada/Cola case to court in North Georgia District Court, U.S. . She also has a consultancy assignment to provide photovoltaic lighting systems for an NGO in Bihar. She can be contacted on Facebook. 

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