{"id":67628,"date":"2015-12-14T12:00:53","date_gmt":"2015-12-14T12:00:53","guid":{"rendered":"https:\/\/www.transcend.org\/tms\/?p=67628"},"modified":"2015-12-13T14:08:08","modified_gmt":"2015-12-13T14:08:08","slug":"reinventing-banking-from-russia-to-iceland-to-ecuador","status":"publish","type":"post","link":"https:\/\/www.transcend.org\/tms\/2015\/12\/reinventing-banking-from-russia-to-iceland-to-ecuador\/","title":{"rendered":"Reinventing Banking: From Russia to Iceland to Ecuador"},"content":{"rendered":"<p><em>11 Dec 2015 &#8211; <\/em>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:<\/p>\n<ul>\n<li>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.<\/li>\n<\/ul>\n<ul>\n<li>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.<\/li>\n<\/ul>\n<ul>\n<li>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.<\/li>\n<\/ul>\n<ul>\n<li>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.<\/li>\n<\/ul>\n<p><strong>Developments in Russia<\/strong><\/p>\n<p>In a November 2015 article titled \u201c<a target=\"_blank\" href=\"http:\/\/journal-neo.org\/2015\/11\/22\/russia-debates-unorthodox-orthodox-financial-alternative\/\" >Russia Debates Unorthodox Orthodox Financial Alternative<\/a>,\u201d William Engdahl writes:<\/p>\n<p><em>A significant debate is underway in Russia since imposition of western financial sanctions on Russian banks and corporations in 2014. It\u2019s 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.<\/em><\/p>\n<p>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\u2019s banking system. Engdahl writes:<\/p>\n<p><em>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 . . . .<\/em><\/p>\n<p>On September 15, 2013, Sergei Glazyev, one of Vladimir Putin\u2019s economic advisers, <a target=\"_blank\" href=\"http:\/\/sputniknews.com\/business\/20150915\/1026993814\/russia-economics-reform.html\" >presented a\u00a0 a series of economic proposals<\/a> 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.<\/p>\n<p>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 <a target=\"_blank\" href=\"http:\/\/www.counterpunch.org\/2015\/09\/03\/quantitative-easing-for-people-jeremy-corbyns-radical-proposal\/\" >the proposal of UK Labour Leader Jeremy Corbyn<\/a> for \u201cquantitative easing for people.\u201d<\/p>\n<p>William Engdahl concludes that Russia is in \u201ca fascinating process of rethinking every aspect of her national economic survival because of the reality of the western attacks,\u201d one that \u201ccould produce a very healthy transformation away from the deadly defects\u201d of the current banking model.<\/p>\n<p><strong>Iceland\u2019s Radical Money Plan<\/strong><\/p>\n<p>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 target=\"_blank\" href=\"http:\/\/www.telegraph.co.uk\/finance\/economics\/11507810\/Iceland-looks-at-ending-boom-and-bust-with-radical-money-plan.html\" >a March 2015 article in the UK Telegraph<\/a>:<\/p>\n<p><em>Iceland\u2019s government is considering a revolutionary monetary proposal \u2013 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 \u201cA better monetary system for Iceland\u201d.<\/em><\/p>\n<p><em>\u201cThe findings will be an important contribution to the upcoming discussion, here and elsewhere, on money creation and monetary policy,\u201d 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.<\/em><\/p>\n<p>Under this \u201cSovereign Money\u201d proposal, the country\u2019s central bank would become<a target=\"_blank\" href=\"http:\/\/www.theautomaticearth.com\/2015\/03\/iceland-to-take-back-the-power-to-create-money\/\" > the only creator of money<\/a>. 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 <a target=\"_blank\" href=\"https:\/\/www.imf.org\/external\/pubs\/ft\/wp\/2012\/wp12202.pdf\" >Kumhof and Benes<\/a>\u00a0of the IMF and the Positive Money group in the UK.<\/p>\n<p><strong>Public Banking Initiatives in Iceland, Ireland and the UK<\/strong><\/p>\n<p><a target=\"_blank\" href=\"https:\/\/www.opendemocracy.net\/ourkingdom\/ann-pettifor\/why-i-disagree-with-positive-money-and-martin-wolf\" >A major concern<\/a> 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).<\/p>\n<p>In Ireland, three political parties \u2013 <a target=\"_blank\" href=\"http:\/\/www.sinnfein.ie\/contents\/35547\" >Sinn Fein<\/a>, <a target=\"_blank\" href=\"http:\/\/www.irishtimes.com\/news\/politics\/green-party-proposes-creation-of-10-new-banks-1.2157506\" >the Green Party<\/a> and <a target=\"_blank\" href=\"http:\/\/www.renuaireland.com\/wp-content\/uploads\/2015\/10\/RENUA-Pre-Budget-2016.pdf\" >Renua Ireland<\/a> (a new party) \u2014 are now supporting initiatives for a network of local publicly-owned banks on the Sparkassen model. In the UK, <a target=\"_blank\" href=\"http:\/\/www.neweconomics.org\/publications\/entry\/reforming-rbs\" >the New Economy Foundation (NEF) is proposing<\/a> 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.<\/p>\n<p><strong>Ecuador\u2019s Dinero Electronico: A National Digital Currency<\/strong><\/p>\n<p>So far, these banking overhauls are just proposals; but in Ecuador, radical transformation of the banking system is under way.<\/p>\n<p>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. <a target=\"_blank\" href=\"http:\/\/panampost.com\/belen-marty\/2015\/05\/31\/ecuadorian-banks-must-adopt-official-electronic-currency-or-else\/\" >In order to \u201cseek efficiency in payment systems<\/a> [and] to promote and contribute to the economic stability of the country,\u201d the government of President Rafael Correa has therefore established the world\u2019s first national digitally-issued currency.<\/p>\n<p>Unlike Bitcoin and similar private crypto-currencies (which have been outlawed in the country), Ecuador\u2019s <em>dinero electronico<\/em> is operated and backed by the government. The Ecuadorian digital currency is <a target=\"_blank\" href=\"http:\/\/www.cnbc.com\/2015\/02\/06\/ecuador-becomes-the-first-country-to-roll-out-its-own-digital-durrency.html\" >less like Bitcoin than like M-Pesa<\/a>, a\u00a0private mobile phone-based money transfer service\u00a0started by\u00a0Vodafone, which has generated a <a target=\"_blank\" href=\"http:\/\/www.cbsnews.com\/videos\/the-future-of-money\/\" >\u201cmobile money\u201d revolution in Kenya<\/a>.<\/p>\n<p>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.<\/p>\n<p>Ecuador\u2019s banks and other financial institutions were ordered in May 2015 to adopt the digital payment system within the next year, making them \u201cmacro-agents\u201d of the Electric Currency System.<\/p>\n<p><a target=\"_blank\" href=\"http:\/\/bitcoinist.net\/ecuadors-e-money-initiative-outlaws-bitcoin-makes-mandatory-banks-follow-dictate\/\" >According to a National Assembly statement<\/a>:<\/p>\n<p><em>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.<\/em><\/p>\n<p>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 \u2013 take it or leave it \u2013 and the people are taking it. According to an October 2015 article titled \u201c<a target=\"_blank\" href=\"http:\/\/www.newsbtc.com\/2015\/08\/13\/ecuadors-digital-currency-is-winning-hearts\/\" >Ecuador\u2019s Digital Currency Is Winning Hearts<\/a>!\u201d, the currency is actually taking the country by storm; and other countries in Latin America and Africa are not far behind.<\/p>\n<p><a target=\"_blank\" href=\"http:\/\/panampost.com\/belen-marty\/2015\/05\/31\/ecuadorian-banks-must-adopt-official-electronic-currency-or-else\/\" >The president of the Ecuadorian Association of Private Banks observes<\/a> that the digital currency could be used to finance the public debt. However, the government has insisted that this will not be done. <a target=\"_blank\" href=\"http:\/\/www.techtimes.com\/articles\/75609\/20150810\/ecuador-first-country-use-public-digital-currency-system.htm\" >According to an economist at Ecuador\u2019s central bank<\/a>:<\/p>\n<p><em>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.<\/em><\/p>\n<p><strong>Banking Moves into the 21<sup>st<\/sup> Century<\/strong><\/p>\n<p>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.<\/p>\n<p>They also raise some provocative questions:<\/p>\n<ul>\n<li>Would issuing \u201cquantitative easing\u201d to the tune of 20 trillion rubles for Russian development and trade trigger hyperinflation?<\/li>\n<\/ul>\n<ul>\n<li>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?<\/li>\n<\/ul>\n<ul>\n<li>How does the Ecuadorian national digital currency mesh with the <a target=\"_blank\" href=\"http:\/\/www.truthdig.com\/report\/item\/hang_onto_your_wallets_negative_interest_the_war_on_cash_20151121\" >\u201cwar on cash\u201d<\/a> underway in Europe?<\/li>\n<\/ul>\n<p>These and related questions will be explored in later articles. Stay tuned.<\/p>\n<p>________________<\/p>\n<p><em>Ellen Brown is an attorney, founder of the\u00a0<\/em><a target=\"_blank\" href=\"http:\/\/publicbankinginstitute.org\/\" >Public Banking Institute<\/a><em>, and author of twelve books including the best-selling\u00a0<\/em><a target=\"_blank\" href=\"http:\/\/webofdebt.com\/\" >Web of Debt<\/a><em>. Her latest book,\u00a0<\/em><a target=\"_blank\" href=\"http:\/\/publicbanksolution.com\/\" >The Public Bank Solution<\/a><em>, explores successful public banking models historically and globally. Her 300+ blog articles are at\u00a0<a target=\"_blank\" href=\"http:\/\/ellenbrown.com\/\" >EllenBrown.com<\/a>.<\/em><\/p>\n<p><a target=\"_blank\" href=\"http:\/\/ellenbrown.com\/2015\/12\/11\/reinventing-banking-developments-in-russia-iceland-the-uk-and-ecuador\/\" >Go to Original \u2013 ellenbrown.com<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>11 Dec 2015 &#8211; 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:<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[146],"tags":[],"class_list":["post-67628","post","type-post","status-publish","format-standard","hentry","category-economics"],"_links":{"self":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts\/67628","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/comments?post=67628"}],"version-history":[{"count":0,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts\/67628\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/media?parent=67628"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/categories?post=67628"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/tags?post=67628"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}