The news of Douglas Carswell’s upcoming Ten Minute Rule Bill is spreading like wildfire, and generating some real excitement.
Nick Cowen at Civitas asks Could Greater Deposit Transparency Improve Bank Lending?
Under current laws, high-street banks maintain a key advantage over other companies. They are allowed to treat money in current accounts both as an on-demand deposit (that can be withdrawn by the account holder at any time) and a loan that can be lent out indefinitely. This makes it much easier for them to lend out money in the good times. However, it also causes problems during a credit crunch or when a bank is considered unsafe for any reason. Then people realise that money cannot actually be in two places at once and deposits could potentially be lost, often requiring the Government to step in to restore confidence.
In a more transparent system, people would see the link between bank deposits and lending. They would appreciate that banks are only able to provide the services (and interest on accounts) that they do because they lent out a large proportion of all money deposited. With that comes a small measure of risk as well. Sometimes debts aren’t repaid on time or not at all. Customers could have the option to opt out of taking that risk, and pay a small fee for banking services instead, or select the level of risk they are prepared (how much of their deposit should be available on-demand at any one time).
This proposal, if implemented, could help end the state practice of fractional-reserve central banking which causes inflation and the business cycle. It will be interesting to see what happens tomorrow. As Baxendale notes, “I hope this Bill gets a second reading so that Honest Money can become a major taking point in the banking reform debate.”
Ben Lodge at The Freedom Association celebrated the Bill as A lesson in sound economics, from some very sound individuals
It is rare to find a member of the public who thinks about our monetary system, and the government’s heavy involvement in the financial sector. It is rarer still to find a politician who would be willing to challenge the conventional wisdom that the recent financial crisis was a failure of “free-market capitalism” and that, of course, the solution should be bailouts and nationalisation. This argument suits the politicians because it passes the blame away from themselves, and justifies an increase in the size of the state.
There are, however, a couple of MPs who still believe in sound economics, who believe that the financial crisis was caused by artificially low interest rates, inflationary monetary policy, and over regulation. Douglas Carswell MP has created a Bill, which will reform the banking sector, which is being supported by Steve Baker MP.
Named after Richard Cobden, one of the most significant Liberal Party figures of the 19th Century, the Cobden Centre is a pressure group that lobbies for honest money and banking reform.
The Cobden Centre is also enthusiastically dedicated to providing education and resources for those interested in Austrian Economics subsequently their website is a treasure trove for any inquiring mind.
Founded by entrepreneur Toby Baxendale earlier this year, the centre has gone from strength to strength rapidly and is certainly a group to watch. Earlier this week Baxendale delivered some hard truths to the bankers whilst speaking in support of the Ten Minute Rule Bill: “Bankers have behaved like Welfare dependents. They exist on £ billion handouts – to fix a credit bubble they had a big role in creating. To preserve free market economics, we need to rediscover honest money.”
Finally, we are grateful to Brian Micklethwait for highlighting the issue on Samizdata:
Ten Minute Bills seldom pass. But they are a chance to fly a kite, put an idea on the map, run something up the flagpole, shoot a shot across the bows …
We hope the message has spread further still, and eagerly anticipate tomorrow’s reading. This is just the beginning.