John Tomlinson

A Challenge to Banking

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Converting debt to equity is not a panacea for all economic ills. It can, however, produce many positive benefits. These benefits will not necessarily follow automatically from conversion. Concentrated effort will be required to ensure they do. Without conversion they will not happen at all.

Not the least of these benefits will be those brought to the banking community itself. The banking and monetary system will not collapse. Nor should there ever need to be the threat of collapse again. Owners of banks will find the value of their shares underpinned as liabilities disappear from balance sheets and are replaced by assets of a specific value. Each and every depositor will be able simultaneously to withdraw his or her total deposits.

Demand for the banks' current or cheque account services will not diminish. Longer term depositors will now have to pay for storage: it will be a less attractive option than exchange, so the velocity with which money moves from bank to market-place to bank again, from one account to another, is likely to increase. There will be a continuous flow of money available for new equity investment.

The market-place in general will also receive benefits. Conversion will allow the value of money to stabilise. Savings can then retain their value. Prices need only vary according to the supply and demand of the product being priced. Measurements of exchange value made by different people at different times can be validly compared. The unit of money will once more be a valid unit of measurement of exchange value. The field of economics can become a science.

Many of the distortions which now exist in our individual frames of reference will be corrected. For instance, an investment, which took an investor ten, fifteen or twenty years to recoup, used to be considered sound. Now, too often the maximum period envisaged is five years; even three. This short-term view has precluded many useful businesses from being created. The re-establishment of stable money and the emphasis on security which will be required within equity investment programmes will encourage people to take a longer view. More businesses will then be considered viable and the number of new jobs can increase dramatically.

Existing savers will also be protected. The conversion to equity will eliminate the possibility of collapse for individual banks and for the system as a whole. Savings will not disappear. The nature of savings will change from just units of money to units of money and shares. The exchange value of both the shares and the money will have to be re-assessed. But they will have value. If no action is taken and the system collapses, they may end up having no value.

The changes proposed will also free many from the enslavement of debt. Both nations and individuals can regain their dignity. They will be free to make their own choices. No longer will managers have to face the choice between paying interest and disemploying some or not paying interest and disemploying all.

Nor shall we need to experience the stresses caused by current economic and business cycles. There will be a steady flow of money into investments. New investment opportunities will continually be sought as a home for both individual saving and business profits. Both will wish to avoid storage charges.

Growth will be dependent upon the continuing development of new ideas and new productive capacity. Growth will no longer be dependent upon the creation of new debt. Economic expansion will depend upon the positive flow of new savings and new profits.

Re-establishing the integrity of money will eliminate at least one of the causes of human conflict. Money will no longer secretly steal from those who save, those on fixed income and those who enter long-term contracts.

Further, it can lead to a greater premium being placed on personal integrity. The character traits of honest, honourable and forthright behaviour will be in demand. Investors' security will depend on them. Recognition of the degree of interdependence in an equity-oriented market-place can lead to more consideration of the needs of others, and, ultimately, to a more caring and compassionate society.

Of course, life is never roses all the way. Many mistakes will be made. When new paths are trodden, the way is sometimes uncertain. Some will find it difficult to break the habitual patterns of thought which govern behaviour in a debt-oriented society. No doubt some readers will have already experienced this.

Some will be hard-pressed when the actual exchange value of their investments becomes apparent. Yet, the conversion process can be controlled. Collapse cannot. We should be able, as part of the conversion process, to identify those who might suffer unduly. Then we can be prepared to assist them and cushion any hardship.

The case for honest money is a compelling one. Honest money is not a thief. It does not steal from the thrifty. It is not socially divisive. It does not promote economic and business cycles, creating unemployment. On the contrary, it encourages thrift. It promotes sustainable economic growth. It rewards merit. It demands integrity.


These are worthwhile goals. They can be achieved. What is needed now is the will to make them happen.

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