THE QUESTION of who should be allowed to create money was debated by MPs yesterday.
While the MPs present agreed on the macroeconomic significance of the money supply and applauded the debate, they disagreed on whether too much or too little money was the current problem.
They also agreed regulators had neglected the important topic.
“Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money,” explained Steve Baker, Conservative MP for Wycombe, in his opening remarks.
Baker and Labour MP Michael Meacher both argued there had been too much money created by banks in previous decades, helping to cause the financial crisis.
Conservative MP Peter Lilley disagreed. “For most of our life times, the problem has been of too much money, now it’s a shortage of money,” he said. Lilley was most likely refering to the UK’s official money measure M4ex which counts the notes, coins, and bank accounts of UK individuals and firms. M4ex growth slowed in 2008 and collapsed after the failure of Lehman Brothers.
Baker’s main policy aim was to remove all legal barriers to using alternative currencies such as bitcoin, to allow them to actively compete with sterling.