Economics

Carswell’s Currency and Banknotes bill

Douglas Carswell’s speech introducing his ten minute rule bill, blogged yesterday by Tim and Steve, is now available in Hansard.

We were pleased to see that Paul Goodman has chosen to highlight it this morning in a post for ConservativeHome:

The Osborne/Balls exchanges during yesterday’s Treasury oral questions are well worth reading, but in the wake of Steve Baker’s piece yesterday I’ve decided instead to put up Douglas Carswell’s speech on his Currency Banknotes (Amendment) Bill. The Labour MP John Mann spoke against the bill, but didn’t seek to force a division. It therefore now proceeds for the time being – though it certainly won’t make the statute book.

Personally, I think we need to abolish legal tender laws, rather than expand them, but I am glad to see the subject raised. Carswell’s speech is well worth reading in full.




Currency and Banknotes (Amendment)

Motion for leave to introduce a Bill (Standing Order No. 23)

3.34 pm

Mr Douglas Carswell (Clacton) (Con): I beg to move,

That leave be given to bring in a Bill to amend the Currency and Banknotes Act 1954 to allow banknotes in addition to those issued by the Bank of England to be legal tender; and for connected purposes.

My Bill would amend the Currency and Banknotes Act 1954 to enable a range of different currencies to be used as legal tender in Britain. The idea comes from a 1989 Treasury paper from when John Major was Chancellor. What the Treasury proposed as theoretically possible 22 years ago, the internet now makes practically achievable.

The internet has given people unprecedented choice. We have access to a greater range of music, financial services, groceries and books than ever before, so why do we have legal tender laws that create a monopoly currency? Thanks to eBay and Amazon, it is possible to buy and sell hundreds of thousands of items at the click of a mouse. It is even possible to do so using whichever currency we please. By making a range of different currencies legal tender in the UK, my Bill would enable people to go a step further. People could buy things, store wealth and pay taxes in a range of different currencies too. Families would be able to plan their financial future without having to do so using a currency that is set to halve in value in the next 14 years. Businesses concerned about rising prices could protect themselves.

We would not need to carry multiple currencies about us in a multi-currency country. Non-cash payments, which since 2004 have exceeded cash payments, mean it would be as easy as using a debit or Oyster card. The 40 years since the collapse of Bretton Woods have been a grand currency experiment. People in Britain might have been using pounds as the unit of currency for centuries, but for the past 40 years the pound has been a fiat—or paper only—currency. Until 1971, the British state could not simply print off as much money as it liked, but since then, a mere 40 years ago, the year that I was born, how many pounds there are in circulation—the money supply—has been directed by Government and by the state. With a fiat pound, there has been no external constraint limiting the amount of money in circulation besides the self-restraint of the British state.

Government turns out not to be very good at restraining Government. UK money supply has grown from £31 billion in 1971 to more than £1,700 billion today—many times faster than the economy. For 40 years, monetarists have argued with those who claim that they follow Keynes about the rate at which the money supply should be increased. There has been much debate about which branch of the state should take the decision. Should it be Ministers, who are accountable to this House, or experts sitting in the Bank of England?

Monetarists or Keynesians, the Monetary Policy Committee or Ministers: so long as it has been left to Government to manage our currency, our currency has been debauched. State officials proved to be no better at managing a nationalised currency than they are at running nationalised airlines or telephone lines.

Just as a broken clock manages to tell the correct time twice a day, our monetary managers have got the settings right on occasion. More often, however, we end up hearing how the state planners lacked the benefit of hindsight. Perhaps we should stop expecting planners to get anything right.

Our paper-only currency system emerged out of the 1960s and 1970s. Like many ideas that grew out of that technocratic age—such as urban tower blocks, child-centred education or DDT pesticide—what seemed terribly modern, forward-looking, progressive and scientific turned out to be a disaster. A small but growing number of academics now see the west’s unfolding financial crisis not simply as a banking problem. It was not simply caused by inadequate capital ratios or too much short selling. Instead, they see it as a fundamental failure of this fiat currency experiment.

A credit balloon was created by reckless management of the money supply. Using inflation, Governments were able to whittle away their debts. Monetary management favoured the debtor over the saver and the consumer over the producer. Monetary policy has encouraged us to over-consume and under-produce, to over-borrow and to save too little. In the space of a generation, fiat money has seen Government grow and the productive sectors of the economy shrink.

Under my proposal, we would no longer be forced to live under such a destructive regime. If the Bank of England keeps printing off more money—more quantitative easing, more loose monetary policy—there may be a fall in the value of its currency, but not necessarily in the value of the currency that the rest of us choose to use. At the click of a mouse, people and businesses would have an alternative. Incidentally, our ability to opt out as individuals and businesses from the MPC’s monetary monopoly might encourage it to stop taking liberties with our currency.

On both sides of the House people recognise that choice and competition safeguard the interests of both the consumer and the citizen. We do not think twice about people being able to tune into different radio and television stations or choose between different hospitals for medical treatment. One day, I hope that Britain will become a multi-currency country.

My proposal for competing currencies is not a new idea. It was the policy of the Conservative Administration in 1989. An excellent Treasury paper presented to this very House suggested competing currencies as an alternative to the European single currency. Perhaps the euro, which we mercifully kept out of, is the ultimate paper-only currency. It is not even backed by the fiat of a single state authority. It is, perhaps, the fiat currency to end all fiat currencies, although perhaps not in quite the way that the architects of economic and monetary union expected. If, as seems possible, the euro breaks up, we should revert to and revisit the ideas in that Treasury paper. By adopting competing currencies, Britain could save herself by her exertions, and save European economies by her example.

Replacing the monopoly of one failed fiat currency with multiple competing currencies would allow euro members the least painful means of extricating themselves from the monetary monster that holds them captive. With choice and competition, all Europeans might be free from the monetary mismanagement that always comes from on high.

John Mann (Bassetlaw) (Lab): I rise to speak because I think it is appropriate that someone from the Labour Benches should oppose this true bastion of Conservatism. History demonstrates to us that, given the opportunity and power, the Conservative party will always attempt to undermine, whittle away and eventually destroy the great institutions of this country. We are seeing it with the police service and the NHS. But Conservative Back Benchers want to go much further. Here we have them proposing a motion, which they wish to become legislation backed by their Front Bench, to take on, challenge and destroy sterling. I think that we on the Labour Benches want to defend the great currency of sterling against such an imposition of Euro-fanaticism—for that is what we have grown to expect from the Conservative party, although it is never up front, never to the public.

One recalls of course that, after Harold Wilson, Denis Healey and others blocked European adventurism, it was the Conservative party, inspired by Sir Keith Joseph, who resolutely took us into the European Union. Who was it who introduced all these new employment laws—maternity leave, paternity leave, a range of rights at work? Indeed, we backed them on that, rightly. It was none other than Margaret Thatcher and the Conservative party, who signed Maastricht. That was the fundamental—

Mr Speaker: Order. I have been listening to the hon. Member for Bassetlaw (John Mann) in a variety of forums for 25 years, and I see no reason to cease doing so now. However, I gently remind him that the matter under discussion is the proposed amendment to the Currency and Banknotes Act 1954.

John Mann: I thank you, Mr Speaker. I was just drawing the parallels with this pernicious motion, which would destroy sterling at the moment of its introduction. We saw the coalition partner, the hon. Member for Colchester (Bob Russell) give an example this very week of how on Eurostar the euro is the currency of use, not sterling. The hon. Member for Clacton (Mr Carswell) wishes to impose the euro on every shop across the country, for every transaction. He would go further: he would allow the Iranian rial and other currencies to be used. When I go to buy my midget gems from the corner shop, I wish to use sterling; I do not wish to use the euro or the Iranian rial.

The idea was inspired by a paper from 1975 by Hayek, which dictated the monetary policy to which the Government are adhering. Hayek first made the proposal, to try to break down boundaries. The concepts of “ever onwards”, free trade, the breakdown of the nation state and the destruction of national currencies are really what Back-Bench Conservative Members are about; they would open the floodgates to euros at every corner shop in Britain.

We should not oppose the motion today; we should give it time, so that the arguments can be developed further, and so that we can hear the supporters’ true perspective—then we should vote it down. I resolutely stand up for sterling and the corner shop, and oppose the euro and the attempt to impose it on us, but I do not seek to divide the House. Let us give the hon. Member for Clacton more time to put forward his case, and let us then destroy him in the vote.

Question put and agreed to.

Ordered,

That Mr Douglas Carswell and Steve Baker present the Bill.

Mr Douglas Carswell accordingly presented the Bill.

Bill read the First time; to be read a Second time on Friday 20 January, and to be printed (Bill 226).

3 comments to Carswell’s Currency and Banknotes bill

  • Samuel Eglington

    I can’t say I like this bill and don’t really know what it is trying to acheive. I can already keep my savings in another currency to prevent devaluation and convert them back as required. As a small businessman it looks like a lot more work and hassle and an excellent opportunity for banks to make more money from transfer fees. However what a nonsense Mr Mann’s opposition was. Douglas Carswell teaming up with Bob Russell to distroy stirling and make corner shops trade in euros, he’ll be telling us there are icecream sellers in hell next!

  • I also have big reservations about this idea.

    First, the currency and banknotes bill is wrong to say that the bill “would enable people to . . buy things, store wealth” etc etc using any currency they want. People can already do this, assuming the counter party to the deal in question is willing. I.e. the authors of the bill do not seem to understand what legal tender is.

    Legal tender is a means of payment that CANNOT LAWFULLY BE REFUSED. That is very different from the above VOLUNTARY deal. Thus the bill would result in every corner shop and hairdresser having to deal in ten or more different currencies. I suggest this would lead to a lot of hassle and wasted time.

    Carswell’s piece above also attributes the loss in value of currencies since they became fiat to an INABILITY of governments to restrain inflation. In fact there is more to it than that: it is generally accepted in economics that an inflation rate of about 2% is optimum. Thus the bill would result in plenty of opposition from the economics profession.

    Personally I have no problem with 2% or a slightly higher level of inflation. Of course it is a form of tax, but it is a tax primarily on people who store up larger than usual amounts of money in bank accounts and do nothing with it for longish periods. I have no objections to taxing such people: money for the health service, education etc has to come from somewhere.

    • Ralph. Why do you imagine money in a bank account ‘does nothing’? You do understand that banks lend this money out (wisely it is hoped) and if it not spent on consumption (as Harriet Harman urged people to do as the crash happened to ‘support the economy’) then it can be used to increase production therefore creating jobs, wealth, prosperity, happiness, ambition, futures, families, generosity, love, care, satisfaction, benevolence, wisdom. Or we could just carry on as we are?

      What is ‘larger than usual’. Is that not just ‘more than you think it should be’? Is that not how dictatorships start? Who decides what too much is? Millionaire Government employees?

      Inflation is theft from those who work and produce, who’s embarrassing underconsumption and savings (like the Swiss Franc) makes a mockery of those who don’t work and want – that include most bureaucrats and politicians. It’s serfdom for the producers by their feckless masters. From 1840 to 1913 the metal backed dollar appreciated 8% even if you had it under the mattress (straw and unsprung). From 1913 to 2008 it depreciated by 98%. I rest my case M’lud.