Printable version from NI Global Issues for Learners of English:
Challenging the system
A look at our money system,
what is wrong with it,
and some ideas about how to change it.
- We need to find a way for people to control money, instead of money controlling people.
- We need to change our thinking about currencies, interest and debt.
In today's money system, the most important thing is the idea that 'money must grow'.
At present, we have to live with this system, but how long can we continue to live this way?CURRENCY: the money that a country uses. The US currency is the dollar. The Japanese currency is the yen.
INTEREST: the cost of borrowing money.
DEBT: an amount of money you owe.
"MONEY MUST GROW"
Why does this make problems?Savings leave poor areas where investment is greatly needed
Savers and bankers look for the highest return on their money. Therefore, they tend to invest in places where development is already booming and the economy is active, rather than investing in their local communities.
So today there are not many small financial institutions (local savings banks, for example), which give financial support to projects in their local communities. Very few local institutions remain, although the Grameen Bank in Bangladesh and the Aston Reinvestment Trust in England are two examples of 'grassroots' savings banks that are successful.
RETURN ON MONEY: the profit you make from investing money.
BOOMING: growing very quickly.
SAVINGS BANK: a bank for people to save small amounts of money.
A GRASSROOTS institution is run by ordinary people, not by high-level leaders or bosses or "important" people who make the big decisions.
Money moves from poor people to rich people
This happens because of debt and the fact that people have to pay interest on loans (the money that they borrow). In this way, poorer people pay money to those who are rich already - making them even richer.
A study in Germany in 1995, for example, found that this system made the richest 10% of the population much richer; the next-richest 10% gained a little; everybody else lost.
This is also true for countries: the Third World debt scandal shows the same problem on a worldwide scale.
THE THIRD WORLD: the poor, developing countries of the world.
Natural resources are destroyed more quickly
If you have money now, you can invest it and get interest, so your wealth will grow more quickly. However, if you leave your oil in the ground, or your fish in the sea, you do not have that money to invest, so it cannot grow into more money.
Companies feel great pressure to make as much profit as possible. Therefore they increase production, even though this damages the environment and means that natural resources cannot be sustained.
INVEST: To use money in order to get a profit. People put money in INVESTMENTS (such as stocks, bonds, and bank accounts) to make more money.
INTEREST: the cost of borrowing money.
Something is SUSTAINED if it continues for a long time.
Money is made out of money
We are living in a world where money is becoming more and more abstract. 95% of the money transactions in the world are not connected to providing real goods or services for people.
ABSTRACT: something that does not have physical reality.
TRANSACTIONS: business deals.
How can we change the system?
Some new ideas are easy to put into practice:
- microcredit;
- local investment banks;
- green investment;
- social investment;
- cancelling the Third World debt.
MICRO = small. CREDIT = the opportunity to borrow money.
GREEN INVESTMENT: Investment that considers the effects of investment on the environment.
SOCIAL INVESTMENT: Investment that considers social values not just money values.
The currency system
The present system:
In the present system, there is strong pressure to centralise power and control. This can be seen in the way that countries have national currencies, or even a common currency that can be used in more than one country.
CURRENCY: The money of a country.
CENTRALISE: To give more power to one central group that tells people what to do.
However, a single currency is not very flexible. If we look at what is happening to a national currency, we do not get accurate information about what is happening in different areas of that country. In the same way, a national currency cannot easily meet the needs of people in different communities.
For example, if a certain area has economic difficulties and cannot bring in enough money, the area will become depressed. The people and the community will not have enough of the national currency to meet their needs. And, clearly, financial policies that are appropriate for richer parts of the country will not help these poorer areas.
If something is FLEXIBLE it adapts easily to different needs.
An area is DEPRESSED if there is not enough business and not enough manufacturing. Lots of people don't have jobs.
An alternative:
Should we have different levels of currency within a country or a group of countries? The different currencies could be used for different purposes.
One example is a kind of currency or credit system that can be used within a community (for example Local Exchange Trading Systems, LETS). In many countries (including the US, Canada, Britain, Australia, Aotearoa/New Zealand) local groups are starting to do this; the number of local currencies and 'quasi-currencies' is growing fast.
On a national level, computerised banking systems could easily deal with several different currencies.
QUASI = 'as if'.
A QUASI-CURRENCY isn't a real currency but it can be used as if it was a real currency.
Debt and interest
The present system:
In the present system of borrowing, lending and interest, governments allow banks to create money and to control credit. Even governments have to pay interest on the loans they take out for public spending.
PUBLIC SPENDING: Using money for projects for people in general
Some alternative ideas:
* Creating new money: should governments do this, instead of banks?
When governments want to pay for public spending programmes and so on, why don't they, themselves, create the money to pay for those projects?* Paying interest on loans: should this be discouraged?
Instead, we can encourage 'risk-sharing' loans. This means that if a bank lends a company some money, the bank will share the risks if the company has financial problems.
Now, if a company has problems, the bank often calls in its loan (asks for its money back.) If the company then goes bankrupt, the bank - or whoever lent the money - has the first chance to take the company's assets.
* Should we introduce 'negative interest rates'?
Instead of receiving interest for saving or lending money, you have to pay. Of course, this encourages people to spend their money.A successful merchant, Silvio Gesell, thought of the idea at the end of the last century; it was used in experiments in Austria in the depression of the 1930's. The city of Worgl, for example, made its own currency. People had to renew all their bank notes every month by paying 2% of their value. Naturally, this encouraged people to spend their money and that, in turn, helped to keep the local economy alive.
If a bank CALLS IN a loan, it demands its money back.
BANKRUPT: Not having enough money to pay your debts.
ASSETS are things which have value.
NEGATIVE = less than zero. A minus amount.
Money is really information
Money is gradually becoming less and less 'real':
- First, it changed from being coins made of valuable metals, to being paper notes and cheques.
- Now money is often just numbers that are stored electronically on computers. When somebody buys something or sells something, electronic messages credit or debit their computerised bank account.
- Money is becoming more and more abstract. 95% of the money transactions in the world are not connected to providing real goods or services for people.
DEBIT: to take money out of.
ABSTRACT: something that does not have physical reality.
TRANSACTIONS: business deals.
These changes show clearly that money is just a way of recording information, a way of keeping score. When people understand this, they may begin to ask:
Why do we need banking 'experts' and a complicated monetary system to record this information for us?
Why can't we create our own recording system?- like the LETS, for example.KEEPING SCORE: Making a record of how many points someone has.
Right now, only a few people try to put these new ideas into practice. But they give us examples of how we can create a people-centred system of money, where others do not control us and exploit us.
EXPLOIT: to treat someone unfairly in order to get money.
Adapted from "Our Money" by James Robertson in the October 1998 issue of the New Internationalist.
Copyright New Internationalist Magazine 1998, 1999
Last Modified: 30 Apr 1999