> Reinventing Banking: From Russia to Iceland to Ecuador

World: Reinventing Banking: From Russia to Iceland to Ecuador

2015/12/16

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

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 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, entirely making it a bank of the people.

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 proposition presented by the Moscow Patriarchate of the Orthodox Church. The proposition, which resembles Islamic interest-free banking models in a lot of respects, was initial 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.

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 as well suggest radical change is on the horizon. The plan is aimed at reducing vulnerability to western sanctions and achieving long-term increase and economic sovereignty.

William Engdahl concludes that Russia is in “a fascinating process of rethinking each 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, too, is looking at a radical transformation of its money system, next suffering the crushing boom/bust cycle of the private banking model that bankrupted its major banks in 2008. According to a March 2015 article in the UK Telegraph:

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

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

Public Banking Initiatives in Iceland, Ireland and the UK

In Ireland, three political parties – Sinn Fein, the Green Party and Renua Ireland (a new party) — are presently 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.

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

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.

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.

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 nations in Latin America and Africa are not far behind.

Banking Moves into the 21^st Century

They as well raise some provocative questions:

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?

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

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