A Monetary Reform Proposal for Iceland

I have recently received from several sources word of a new monetary reform proposal. This one, commissioned by the Prime Minister of Iceland, is titled, MONETARY REFORM A BETTER MONETARY SYSTEM FOR ICELAND, and is authored by Frosti Sigurjonsson.

I’ve taken the time to read only the Overview and summary portion, but that is sufficient to discern the crux of the Sigurjonsson proposal, which is this:

The Central Bank will be exclusively responsible for creating the money necessary to support economic growth. Instead of relying on interest rates to influence money creation by banks, the Central Bank can change the money supply directly. Decisions on money creation will be taken by a committee that is independent of government and transparent in its decision-making, as is the current monetary policy committee.

New money, created by the Central Bank, will be transferred to the government and put into circulation in the economy via increased government spending, by reduction in taxes, by repaying public debt or by paying a citizen dividend.

The Central Bank will also be able to create money for lending to banks for onward lending to businesses outside the financial sector.

Sigurjonsson indicates that his proposal draws heavily upon an earlier proposal titled, A Monetary Reform for the Information Age, by Joseph Huber and James Robertson (New Economics Foundation (2001)), which I critiqued early in 2002. That critique, along with subsequent dialog between the authors and myself, can be found at http://reinventingmoney.com/monetary-reform-information-age/.

Since both the Sigurjonsson proposal or the Huber/Robertson proposal advocate the same basic approach, I strongly believe that any serious consideration of either, should also consider my above mentioned earlier critique and subsequent dialog.

While I agree with much of what Huber and Robertson (and presumably, Sigurjonsson) say about the defects in the present money system, I believe that their proposed centralized “solution” does not go nearly far enough in solving those defects. Continuation of the money monopoly in (presumably) different hands does not get to the root of the problem. It is my view that the key to achieving more equitable and sustainable economic interrelationships lies in liberating the exchange process from monopolized money and banking, enabling the creation of competing currencies and credit clearing exchanges, and allowing the needs of traders themselves to determine the supply of exchange media (money) in circulation at any given point in time.

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One response to “A Monetary Reform Proposal for Iceland

  1. I agree with your analysis and concerns on the Iceland proposal,in principle it’s positive and tackles “best practice” on money creation in the interest of the people and not driven by profit in favour of shareholders. Here,in Ireland we are pursuing a model of public banking based on the Sparkassen 200 yr model which is “localised banking” while at the same time folding the interest/profits back into the local community as opposed to the private banks’ shareholders.
    I have attached an overview/article that you may consider reading ( see embedded links in the article ) that indicates some of the advantages on how this model/system works. It also demonstrates the importance of counter-cyclical lending and having an alternative should the private system fail us again.
    http://ellenbrown.com/2015/02/10/why-public-banks-outperform-private-banks-unfair-competition-or-a-better-mousetrap/#more-9084

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