Money does not have to be debt.

Money seems self-evident, but it is not

Where does money come from anyway? A lot of people think the central bank makes the money. But how that money then goes into circulation, hardly anyone knows. In reality, all the deposit money we use every day is created when commercial banks extend credit.

A lot of people think banks lend money that other customers have saved first. That makes sense: one brings money to the bank and the bank then lends it to another.

But that's not how our modern monetary system works.

All deposit money is created when commercial banks extend credit. That is the money we see as figures in our bank account and with which we make almost all our payments.

To understand how that works, we start with a simple thought experiment.

What if there is no money yet?

Think of a small society where no money is used yet. People trade directly with each other. A baker exchanges bread for milk, a carpenter repairs a door in exchange for potatoes.

That works as long as everyone can find exactly what they need. But bartering is clumsy. The baker must just need milk when the dairy farmer wants bread.

That is why society decides to use money. Money becomes the common intermediate step. The baker sells bread for money and can use that money later to buy milk, clothing or tools.

But then a new question arises:

Who puts the first money into circulation?

In our current monetary system, this happens when someone takes out a loan from a commercial bank.

A 100 euro loan

Suppose person A borrows a hundred euros from a bank for a period of one year.

The bank does not need to get an existing stack of 100 euro banknotes from somewhere. It records two amounts in its accounts:

• the bank receives a claim of 100 euro on person A;
• the bank credits one hundred euros to person A’s payment account.

On the screen of person A is now €100. He can transfer that money, pay with it, or withdraw it.

New deposit money is formed.

At the same time, a debt has arisen. The new money and the new debt are two sides of the same booking. Person A has a bank balance of €100 but has to repay 100 euros to the bank.

The bank has therefore not transferred an existing hundred euros. It has created new money and attached a repayment obligation to it.

Money comes with debt

This is the main feature of the current system:

When a commercial bank lends credit, new deposit money and new debt arise simultaneously.

This does not mean that banks can provide unlimited loans. A bank must take into account supervision, capital requirements, liquidity, risks and whether a customer can repay the loan.

But within these limits banks create our overnight currency by lending.

For example:

• mortgages;
• business loans;
• personal loans;
• credit for the purchase of real estate;
• financing of investments and other assets.

When many new loans are granted, the amount of deposit money grows. If more loans are repaid than new loans are issued, the amount of money in circulation decreases.

As a result, society’s money supply depends on the willingness of banks to provide credit and the willingness of citizens and businesses to incur debt.

What happens at redemption?

Suppose person A pays back the loaned one hundred euros later.

The bank then reduces the balance used by A for repayment and simultaneously writes off the debt. The 100 euros that emerged when the loan was granted will disappear from the cash supply when the money is repaid.

The principal amount of the loan is not simply placed in a safe. Accountingly, the money and the corresponding debt are crossed out against each other.

This creates a cycle:

• credit deposit money;
• that money circulates in society during its lifetime;
• With redemption, the money created disappears again.

So money creation and money destruction take place every day in the administrations of commercial banks.

What about the interest?

The bank not only requires the €100 loan to be repaid; it also charges interest.

At an interest rate of three per cent, person A will have to pay a total of €103 after one year: €100 in principal and €3 in interest.

The €100 principal is destroyed upon repayment. The three euros in interest are different. It becomes income for the bank.

This money may return to society if, for example, the bank pays salaries, suppliers, taxes or other costs. The same money can therefore be used several times to fulfil obligations.

But interest is a continuous flow of money from debtors to banks and other holders of financial claims. The larger the total debt mountain, the more important this money flow becomes for the economy.

We will discuss the consequences in the next essay. For the moment, it is particularly important that all the deposit money is created as debt and that interest should be paid on that debt.

Deposit money is a claim on a bank

The money in a bank account is not legally owned by the account holder, but by the bank. The account holder shall have a claim on the bank: a promise that the bank will pay or transfer the balance upon request.

The bank promises that you can use the credit for payments or convert it into cash.

Because virtually everyone needs a bank account, private bank balances have become our everyday means of payment. Therefore, banks are strictly controlled and there are provisions such as the deposit guarantee scheme, liquidity support and rules for banks that are in difficulty.

This safety net is needed because two different activities are interlinked:

1. keeping and using our daily money; 2. commercial lending and risk assessment.

If a bank suffers large losses with its commercial activities, it may ultimately also affect confidence in our bank accounts and payments.

Who decides where new money ends up?

Because every new bank loan creates new deposit money, banks determine where new purchasing power first appears in the economy.

A loan can be used for a new factory, a home, a company acquisition or an investment. The first destination of new money is thus determined by the question where banks expect sufficient return and where they see enough security or collateral.

This does not have to be the same destination as what is most useful to society.

A bank understandably mainly assesses whether a loan provides sufficient return and is likely to be repaid. It does not need to assess whether the activity has the most value to society. As a result, commercial interests determine what new money is being spent first, not democracy.

A human-designed system

Article 106 of the Dutch Constitution says: The law regulates the monetary system. This gives rise to the expectation that the establishment of our monetary system will be democratically controlled. In practice, however, commercial banks determine how much deposit money is created, to whom that money becomes available first and for which it is used. The law does set limits on banks, but the most important power within the monetary system is not in the hands of democracy. As a result, society has virtually no say in money creation.

We have chosen to use commercial bank balances as general payment money. In doing so, we have also opted for a system in which all the deposit money comes from credit.

This system has made economic development, housing and entrepreneurship possible. Credit can enable people and companies to build something today that will only yield revenue later.

But the same facility also has consequences.

If all the deposit money comes together with new debt, the economy will become dependent on credit. And if our daily money is an obligation of commercial banks, the risks of banks can continue to work in the rest of society.

That brings us to the following question:

What happens when more and more money, debt, interest and financial assets pile up?

What the consequences are is discussed in the next section, Why our monetary system gets stuck.

Money does not arise without obligations

In the previous essay we saw that all the deposit money comes when a commercial bank provides credit. Each new euro is therefore subject to debt from the outset.

Interest must be paid on that debt. So society does not receive new money without obligations. It receives money to be repaid later, plus interest.

As long as there is sufficient income and the money borrowed is used productively, that does not seem to be a problem. An entrepreneur can start a business with a loan, earn income and repay the loan.

But for society as a whole, it is more complicated. All money users together must pay not only the principal amounts borrowed but also the interest that banks and other financial institutions charge.

This creates a continuous flow of money from society to the financial sector.

A hundred euros money, but a hundred three euros refund

Let’s look again at our example with person A. He borrows €100 from the bank at three percent interest. This loan creates €100 in deposit money.

After a year, A has to pay €103 to the bank. But his loan only put €100 into circulation. The three euros in interest were not created at the same time as his loan.

A can earn those three euros from someone else. Therefore we add person B to the example. B also borrowed €100. Together, A and B now have €200 in money and €200 in debt.

A works for B and receives three euros. A now has €103 and can pay its debt plus interest to the bank in full.

The principal amount of €100 will be destroyed at redemption. The three euros in interest become income of the bank. A is out of debt, but B has only €97 in its account and still a debt of €100.

After person A has repaid his loan, person B still has €97, while he still has a debt of €100. He also has to pay €3 interest on this. The bank has now received €3 without paying interest on it. For person B, the situation has become heavier: with the remaining €97, €103 has to be paid. The interest burden is therefore no longer 3% of the money still in circulation, but more than 3.09%. In order to fulfil all obligations, therefore, more new money must be lent than if only person A had had a loan. Thus, the dependence on new debt continues to grow.

The money does not always disappear, but changes ownership

The bank may reissue the interest received. For example, it pays staff, buildings, suppliers, shareholders or taxes. This allows the money to return to society.

But the money can also remain within the financial sector. The bank or the recipient of the interest payment may use it to purchase or relocate financial assets at interest.

The problem is therefore not only that interest must be paid. The problem is also where interest ends up and what happens to that money afterwards.

For a household or company interest is a cost item. For the owner of a loan or other financial claim, the same interest is income.

As we have seen before, people and businesses need more and more new debts to pay their existing debts and interest charges. The financial sector benefits from every new loan and from any new interest payment, without itself having to provide useful work or produce socially necessary goods in return. An increasing proportion of the money flows from society into the financial sector.

The growing interest burden continues throughout the economy. Entrepreneurs incorporate interest on their loans into the prices of their products and services. Households need a higher income to be able to pay interest in addition to their ordinary expenses. The government also pays interest on its debts. As these interest charges increase, more tax money is needed and the tax burden increases. People pay interest not only on their own debts, but also on higher prices and taxes. As a result, the cost of living is increasing.

Money makes new money easier and easier

Those who have a lot of money and financial assets can easily get new credit. Capital can serve as collateral and gives a bank more certainty that a loan will be repaid.

As a result, someone who already owns wealth can borrow cheap money and use that money to buy assets that yield more than the interest on the loan costs.

With borrowed money, for example, shares, homes, business premises or other investments can be purchased.

Every new loan brings new money into circulation. If there is no production useful to society, the amount of money increases without the quantity of goods and services available growing. The value of the money then drops and prices rise. The assets themselves have not become more valuable to society, but the increased amount of money is still paying a higher price.

This creates a self-enhancing cycle:

more wealth → easier borrowing → buying more assets → higher prices → more collateral → more borrowing

As a result, new money is increasingly used to buy existing assets, rather than to produce new goods and services that are useful to society. People who already have a lot of money and assets can benefit from this. They can borrow more easily and on more favourable terms, thus buying even more assets and benefiting from rising prices. This is how the monetary system helps those who are already wealthy.

The financial economy is growing faster than the real economy

The real economy consists of producing goods and services. People build homes, grow food, care for patients, transport products, provide education and maintained infrastructure.

The financial economy consists of loans, shares, bonds, financial arrangements and trading in existing assets. A financial sector is useful when it leads savings to productive investment and helps spread risks.

But when more and more credit is used to buy existing financial assets and real estate, the financial economy grows without real production increasing at the same rate.

An existing house that is twice as expensive does not suddenly offer twice as much living space. A significant increase in price does not automatically mean that the company produces twice as many products.

More wealth has been created on paper, but society does not necessarily have more homes, food, energy, care or other useful facilities.

The financial sector can thus make increasing profits with activities that add little or nothing to what society can really use.

Rising prices increase inequality

When a lot of new credit flows to homes, land and shares, the prices of those assets rise.

People who already have these possessions see their wealth grow. This makes it easier for them to borrow again and buy more assets.

People without homes, stocks or other assets do not benefit from this price increase. On the contrary, they need to borrow more and more to gain access to the same dwelling or property.

A higher house price does not make the house any better. It mainly ensures that a subsequent buyer has to incur a larger debt and pay interest for a longer period of time.

The monetary system therefore widens the gap between people who receive interest and capital gains and those who pay interest.

Wealth attracts more wealth. Debt attracts more interest charges.

The economy depends on increasing debt

When a loan is repaid, the money generated by that loan disappears from circulation. In itself, a smaller amount of money should not be a problem: If less money is available for the same quantity of goods and services, prices may fall. However, the outstanding debts and interest due on them do not fall. As a result, the interest burden on the remaining money supply is increasing. Within the current system, it is therefore important that the money supply does not shrink, but continues to increase. Existing debts and interest charges will then become relatively smaller and thus remain more affordable.

As a result, the system has a built-in need for new lending. Without new debt, no new deposit money is created.

When households, businesses and governments become cautious and want to borrow less, money supply growth decreases. This will reduce spending and reduce prices and incomes. However, existing debt and interest charges do not decrease and therefore become relatively heavier. That makes people and businesses even more reluctant to take on new debt. A downward spiral can therefore develop: less credit, less money, less spending and an increasingly heavy debt burden. Ultimately, this can lead to bankruptcy and economic contraction.

Central banks and governments then try to re-launch the credit. The interest rate is reduced, banks get extra space and borrowing is made more attractive.

This addresses the immediate crisis, but the underlying debt dependency is increasing further.

The remedy for a problem caused by too much debt is then yet more debt!

Interest can't solve the problem anymore

Interest rates are the main means by which central banks try to adjust the economy.

In the case of inflation, they raise interest rates. Borrowing is becoming more expensive, reducing the borrowing and spending of citizens and businesses. That should slow down the price increases.

However, higher interest rates also increase the burden on all existing debts that need to be refinanced or whose interest rates may change.

Households have less money left. Companies are delaying investment. Governments pay more interest and have less room for public services. Financial institutions may be in trouble when loans are no longer repaid.

If interest rates are reduced, existing debts become more affordable. But cheap credit stimulates new loans, further money growth and again rising prices of real estate and financial assets.

The interest rate has to be lowered to keep the accumulated debts payable, but up to curb new credit growth and currency depreciation.

Whichever way the central bank moves, it increases another problem. The control mechanism has become part of the malfunction it should correct.

The risks are borne by society

Commercial banks make money with credit, but their bank balances simultaneously constitute society’s means of payment.

As a result, a problem with a bank is not automatically limited to the bank, its shareholders and its lenders. A large bank can manage so many payments, savings and loans that its downfall threatens the entire economy.

Therefore, there are deposit guarantees, strict supervision, capital requirements, emergency loans, rescue operations and special rules for banks in difficulty.

The profits from lending are private, but a significant part of the risks are ultimately absorbed by society.

Banks are thus given a special position. They are commercial companies, but society can hardly afford to let large banks go bankrupt.

As long as our money and the risk of commercial lending remain intertwined, the financial sector retains this dominant position.

A system that needs growth to survive

An economy can grow because people work smarter, develop new techniques or make better products. That is something other than growth needed to maintain a financial system.

In the current system, money growth, debt growth and economic growth are linked. New debt brings new money into circulation. This new money helps to keep existing commitments, including interest, affordable.

It makes stopping dangerous. If the economy does not grow further, debt will become heavier than income and production. Bankruptcies are increasing and banks are becoming more reluctant with new lending.

The system functions most easily when incomes, production, assets, money and debts all continue to grow.

But on a finite earth, not everything can continue to grow indefinitely. And even without natural boundaries, a society should be free to choose peace, sustainability or shorter working hours without compromising its monetary system.

The problem lies in the connection between money and credit

Banks, credit and interest are not the fundamental problem in itself. Credit may be useful and interest may be a compensation for making money available and carrying risk.

The real problem is that commercial lending simultaneously creates society’s money.

As a result, credit growth leads to money growth, influences commercial interests where new money arrives and risks from the financial sector can pass on to society as a whole.

As long as money creation and lending remain linked, the main problems of the current monetary system will also remain:

• In good times, banks are providing more and more credit, bringing more and more money into circulation.
• In bad times, less money is borrowed and less money is created, strengthening the economic downturn.
• The proceeds of credit come to the banks, while society ultimately bears the risks when banks get into difficulties.
• The system constantly moves between too much credit in good times and too little credit in bad times. It is therefore naturally unstable.

To break this cycle, money creation must be separated from credit.

How this can be done is discussed in the next section, There is another way.

Money doesn't have to be debt

In the current monetary system, deposit money arises when a commercial bank grants a loan. Money and debt are therefore born at the same time.

That seems obvious, but it is not a law of nature. A society can also choose to separate money and credit.

Money can be issued directly by a public institution without anyone having to pay a debt first.

Lending continues to exist. The difference is that granting a loan no longer creates new money.

The core of BeterGeld is therefore simple:

Money is a public service. Lending is a financial activity in which the provider itself bears the risk.

A public Monetary Authority

In the new system only a public Monetary Authority is given the power to create new money or withdraw money from circulation.

This Monetary Authority does not determine what the money is spent on. It only determines how much money is needed to keep the value of the money as stable as possible.

It looks at the quantity of goods and services that society can produce and the amount of money already in circulation.

If production grows and there is a need for more money, the Monetary Authority can make new money available.

If there is too much money in circulation compared to what society can deliver, then money must also be withdrawn.

The Monetary Authority directly monitors the amount of money in circulation. It does not seek to indirectly influence the money supply through centrally set interest rates. The Monetary Authority determines how much money can be added or withdrawn from circulation. Democracy determines what the new money is spent on.

New money goes into circulation without debt

The new money is not put into circulation as a loan, but made available to society without debt.

The government can then use this money through the democratically established budget.

It can be used, for example, for care, education, housing, energy supply, infrastructure or other things that society considers important.

Through wages, orders to companies and payments to suppliers, the new money will automatically enter the economy.

This new money is not owed to a commercial bank and no interest has to be paid.

As a result, society does not have to pay more and more debts to get enough money.

Democracy gets back control

In the current system, commercial banks determine where new money ends up first through their lending.

They base their decisions mainly on return, collateral and the possibility of a loan being repaid.

In the new system, the amount of new money is determined by a public Monetary Authority. The elected parliament then decides through the budget what this money will be spent on.

This means that democratic choices, rather than the commercial interests of banks, determine where new money is first used.

Article 106 of the Dutch Constitution states that the law regulates the monetary system. By bringing money creation under public and democratic control, this article of the Constitution is actually given substance.

Keep money safe

Every citizen and every company has access to a public payment and custody account.

The money in this account may not be lent, invested or used for commercial activities. The public institution keeps and administers the money and takes care of payments.

The balance is therefore no longer a claim on a commercial bank, but the money itself.

If a commercial bank goes bankrupt, then the public money on the payment account simply continues to exist.

So people can keep and use their money safely without being forced to bear the risks of a commercial bank.

Banks continue to exist

Banks continue to play an important role. They may grant loans to households, entrepreneurs and other organisations.

The important difference is that banks are not allowed to create new money when granting a loan.

They can only lend money that existing money holders have voluntarily made available to them for that purpose.

Anyone who wants to keep his money safe only keeps it in a public account. Those wishing to receive interest may choose to make their money available to a bank for a certain period.

A genuine risk therefore stands opposite the possibility of a return. Anyone who opts for that return will suffer the consequences when a lending bank suffers losses.

Interest is therefore not prohibited. It once again becomes compensation for the actual provision of existing money and for the carrying of risk.

A bank could go bankrupt again.

When a lending bank makes wrong decisions, it must be able to go bankrupt like any other commercial company.

This bankruptcy does not endanger society’s money and the payment system. The public money of citizens and businesses is outside the lending bank.

Bankruptcy does not change the amount of public money in circulation. There is no separate bankruptcy process in which the loans are transferred by operation of law or sold to another party. The borrower therefore cannot suddenly be given a different contracting party without consent.

When the lending bank ceases to exist, its claims against the borrowers also lapse. Shareholders and people who voluntarily made money available to the bank in pursuit of a return may lose their investment. They knowingly accepted a commercial risk and must also bear its consequences.

The financial sector may establish a private guarantee fund or certification scheme to protect funders wholly or partly against such losses. Its terms and financing are the responsibility of the sector itself. The government, the Monetary Authority and holders of public payment accounts do not guarantee it.

If the bankruptcy involves fraud, collusion or another criminal offence, criminal proceedings may be used to investigate whether the loss can be recovered from the persons responsible. A borrower who acted in good faith cannot subsequently be pursued by a new creditor.

The consequences of wrong lending remain with the financial sector and are no longer automatically passed on to society as a whole.

Banks receive the proceeds from their activities, but will now also carry the corresponding risks themselves.

The deposit guarantee scheme becomes redundant

Under the current system, the money on a payment account is legally a claim on a commercial bank. Therefore, the government must guarantee part of that money when a bank goes bankrupt.

In the new system, everyone can keep their daily money safe in a public account.

Anyone who makes money available to a lending bank to receive interest deliberately opts for a risky investment.

There is no reason to allow society to guarantee this voluntary risk.

The deposit guarantee scheme for commercial banks can therefore be phased out. The money on public payment accounts is guaranteed by society. As this money is not lent, invested or exposed to other commercial risks, that guarantee does not have to cover credit losses. It protects only against system technical risks such as fraud, hackers, administrative errors or serious system failure.

The public authorities may not borrow, invest, claim or use the money on public payment accounts. The money remains exclusively owned by the account holder. This principle should be enshrined in the Constitution. Officials or employees who nevertheless have unlawful access to these funds are guilty of a serious crime and must be subject to severe penalties. Only on the basis of an individual legal obligation or a judgment, for example in the case of tax collection or seizure, can an account holder's money be debited. Public money as a whole should never be used as a source of public funding.

A public payment account should never be blocked because someone criticises the government, proclaims political views or participates in a peaceful protest. This ban should also be laid down in the Constitution and applies to both public authorities and the judiciary. A blockade should only take place in the event of a specific suspicion of a serious criminal offence and should be necessary, proportionate, temporary and verifiable. The account holder must be informed immediately, have access to money for essential living expenses and be able to appeal to an independent judge quickly. Political criticism should never be a reason to deprive anyone of access to their own money.

The economy does not have to make more and more debts

Because money is no longer generated by credit, less borrowing does not automatically lead to less money in society.

People and businesses can pay off their debts without reducing the total money supply.

Society does not need to constantly incur new debts in order to keep the existing debt and interest payments payable.

The upward pressure on prices, taxes and the cost of living is also reduced by an ever-growing interest burden.

Credit may be used again for which it is intended: financing plans and investments for which additional funds are temporarily needed.

The amount of money is no longer determined by the willingness of banks to provide credit or by the willingness of people to take on debt.

Economic growth becomes a choice

In the current system, continuous growth helps to keep an increasing amount of debt and interest payments payable.

When money creation and lending are disconnected, the economy does not need to grow constantly to keep the monetary system going.

Growth remains possible when it leads to more prosperity, better products or useful renewal. But growth is no longer a prerequisite for stable money supply.

Higher productivity can therefore also be used for shorter working hours, more sustainable production or better quality of life.

Not the need of the monetary system, but the needs of people and society can be at the heart of it.

The transition to BeterGeld

A change in the monetary system cannot take place overnight. The transition must be carried out carefully, gradually and verifiably.

At a defined time, existing balances on ordinary payment accounts can be converted into public money on a one-to-one basis.

Existing loans and agreements on interest and repayment remain valid. Only with new loans can banks no longer create new money.

If during the transition it appears that temporarily insufficient existing money is available for necessary lending, the Monetary Authority may make a limited amount of money available to lending banks. This is done only during a pre-established transitional period and must be cautious, transparent and verifiable. Banks have to repay this money, after which the Monetary Authority takes it out of circulation. At the end of the transitional period, this possibility shall cease to apply definitively.

If repayment of the temporary funding withdraws too much money from society, the Monetary Authority can correct this. It will then make available to the government an appropriate amount of new money without debt or interest burden. Through democratically determined public expenditure, this money comes back into circulation. The Monetary Authority monitors only how much money has to return; democracy determines what it is spent on.

From the end of the transitional period, lending banks can only lend money that savers and investors genuinely and voluntarily make available to them.

At the same time, clear rules must prevent politicians from forcing unlimited money creation. The Monetary Authority must operate independently, disclose its calculations and be democratically controlled.

The transition therefore requires caution and good legislation. But technically and organizationally it is possible.

A clear separation

BeterGeld clearly separates two things that are now interwoven:

• Money becomes a public facility that allows everyone to pay and save safely.
• Lending remains a commercial activity involving profit and risk in the financial sector.

As a result, a bank can go bankrupt without the money disappearing from society. Less credit does not automatically cause a shortage of money and for new money nobody has to take on a debt first.

The monetary system is once again under public and democratic control.

BeterGeld does not promise that all economic problems will disappear. Scarcity, poor investments and political mistakes remain possible. However, the risks of commercial lending are separated from our money and from the functioning of society.

What problems are solved and what new risks may arise in a public monetary system is discussed under the button Why BeterGeld creates greater prosperity.

Prosperity is more than economic growth

Prosperity is not just about the amount of money earned or about the growth of gross domestic product.

Real prosperity is about what people can do with their income, how much security they have and whether important essentials such as housing, food, energy, healthcare and education are affordable.

Free time, a healthy environment, financial security and the absence of problematic debts also contribute to prosperity.

A monetary system should therefore not be judged on how much money, credit and financial trade it produces, but on how it contributes to the well-being of society.

Less money disappears in interest charges

In the current system, interest must be paid on virtually all the money generated as credit. These interest charges are included in the prices of products and services.

The government also pays interest. This money must be collected through taxes and cannot be spent on healthcare, education, infrastructure or other public services.

Within BeterGeld, new money can be put into circulation without debt and without an interest burden. As a result, society does not have to constantly incur new debts in order to have sufficient money.

Interest doesn't disappear. Whoever borrows money still pays a fee to the person who voluntarily makes that money available and carries the corresponding risk. But there is no need to pay interest on money created solely to provide the economy with means of payment.

As a result, a smaller share of income can flow to the financial sector and a larger share remains available to households, businesses and public services.

Lower cost of living

Entrepreneurs must recover interest on their loans. They therefore pass these interest charges on to the prices of their products and services.

Households pay interest on mortgages and other loans. They also contribute to the interest costs of all companies in the production chain through higher prices.

Higher interest charges from the government also end up with citizens, through higher taxes or less public provisions.

When total debt growth is less rapid, interest rates on prices, incomes and taxes also decrease.

BeterGeld can therefore contribute to lower costs of living and greater purchasing power, without ever increasing wages and benefits.

New money benefits society

Now new money comes first to the creditworthy enough to get a loan from a bank.

As a result, a lot of new money is used to purchase existing homes, land, shares and other assets. This is what drives prices.

Within BeterGeld, the Monetary Authority determines how much new money can be put into circulation responsibly. Democracy then determines what this money is spent on.

New money can thus be used for services that benefit society as a whole, such as housing, care, education, energy, public transport and infrastructure.

The social proceeds of money creation then no longer end up primarily with commercial banks, but with the society that uses and values the money.

Work and production become more important than possession

In the current system people who already have a lot of money and assets can easily get new credit. This allows them to buy even more assets and benefit from rising prices.

Those who do not yet own housing, shares or other assets must borrow more and more to acquire them.

This allows property to be rewarded faster than labour. Whoever already has wealth sees that wealth grow, while people who have to live off their work have lost an increasing share of their income from living, interest and taxes.

When money creation no longer drives up the prices of existing assets, this self-reinforced advantage is reduced.

Income from useful work and production is then given more significance in relation to income arising exclusively from possession of money and financial claims.

Homes are meant to live in again

Banks provide large amounts of new credit for the purchase of existing homes. This does not increase the number of homes, but increases the amount of money offered on the same homes.

As a result, house prices increase and subsequent buyers have to close even higher mortgages. These new mortgages are putting money into circulation again and increasing prices.

Within BeterGeld a bank can only lend existing money. The amount of money does not automatically grow with every mortgage.

This removes an important cause of constantly rising house prices. The price of a dwelling can then be determined more strongly by actual demand, construction costs, location and available supply.

Houses remain valuable, but become less suitable as a means of increasing capital gains with increasing debt.

Less economic shocks

In good times banks and borrowers are optimistic. A lot of credit is being provided, which brings a lot of new money into circulation and can raise prices quickly.

In bad times, the opposite happens. Banks become more cautious, people want to borrow less and money growth falls silent. However, existing debts and interest charges remain and become relatively heavier.

Thus, the current monetary system strengthens both the rise and the decline of the economy.

BeterGeld makes the amount of money less dependent on the trust of banks and borrowers. Less credit will not automatically result in a shortage of money and a relative increase in the interest burden on existing debts.

Economic downturns and misinvestments remain possible, but they do not need to grow into a financial crisis that affects society as a whole.

Banks go back to serving the economy

Banks remain useful within BeterGeld. They assess plans, bring together lenders and borrowers and monitor whether loans are likely to be repaid.

They make money by doing this work properly, not by allowing them to create new money themselves.

Since banks can only lend existing money, they need to weigh more carefully what investments are financed with the available money.

As a result, credit can be more focused on companies, innovation and production, rather than on the re-trading of existing assets at higher prices.

If a bank makes wrong choices, the bank, its shareholders and its voluntary lenders bear the losses. Public money supply and payments remain out of the question.

A society with less fear of banking problems

People need no longer be afraid that their daily money will disappear when a commercial bank gets into trouble.

The money on a public payment account shall not be lent or invested and shall not be subject to commercial risks.

As a result, a lending bank can go bankrupt without the breakdown of shops, salaries, benefits and payments.

The government no longer needs to save a bank to protect citizens' and businesses' money.

That reduces the power of large banks. They can no longer keep all the proceeds to themselves and rely on society in the event of large losses.

Growth becomes a possibility instead of an obligation

The current system constantly needs new loans and money growth to keep the existing debt and interest payments payable.

This creates constant pressure to produce more, consume more and use more natural resources.

Within BeterGeld, the money supply can remain stable without the need for households, businesses and governments to continue to incur new debts.

Economic growth remains possible and may be desirable if it is actually generating more prosperity.

But if technological progress makes it possible to produce the same amount of useful goods and services with less labour, society can also opt for shorter working hours, more sustainable production or more leisure time.

The economy will no longer have to grow to maintain the monetary system. The monetary system is at the service of society, rather than the other way around.

BeterGeld does not make everything free

Creating public money does not automatically make people, raw materials, energy and machines available.

If society wants to spend more than it can produce, prices rise. The same applies within BeterGeld.

The Monetary Authority should therefore only allow new money if sufficient people, knowledge, raw materials and production capacity are involved.

The real limit to our prosperity is not the number of figures in bank accounts, but what society can or wants to produce with the available people, knowledge and resources and to which it wants to use these opportunities democratically.

BeterGeld does not make everything possible. However, it prevents plans which are socially feasible and desirable from being stopped only because there is not enough new debt first.

BeterGeld also has risks

No monetary system succeeds automatically. A public monetary system can also be abused or mismanaged.

Politicians can exert pressure to create too much money. The Monetary Authority can misjudge the economy. Too much money can lead to price increases and too little money can unduly slow down the economy.

When banks can no longer create money, too little money may temporarily be available for lending during the transition. In this case, the Monetary Authority may make available to lending banks a limited amount of money for a predetermined transitional period. This should be done with restraint, transparency and solely to prevent serious credit shortages. The money made available must be repaid and then withdrawn. At the end of the statutory transitional period, this option will cease permanently and banks may only lend money voluntarily made available by lenders.

A central public payment infrastructure can also be an attractive target for hackers, sabotage or abuse of power.

These risks are real and should not be muffled away. The difference is that they can be made visible and limited by clear rules.

Protection against abuse of power

The Monetary Authority should be able to determine how much money is responsible independently of daily politics.

Its calculations, decisions and data used must be public and verifiable. Directors are appointed for fixed periods and must be accountable to Parliament and independent supervisors.

Politics cannot force the Monetary Authority to create extra money. Conversely, the Monetary Authority should not determine what the available money is spent on.

The government cannot use the money in public accounts for its own expenses. That prohibition must be enshrined in the Constitution and its violation must be severely punishable.

Nor should anyone lose access to their money because of criticism of the government, political views or participation in a peaceful protest.

The public payment infrastructure should be technically distributed across several independently secured systems. Regular checks, emergency facilities and repair facilities shall prevent one malfunction or attack from stopping payments.

A fairer distribution of return and risk

BeterGeld promises no society without debt, interest, bankruptcies or economic setbacks.

It'll make a fairer divorce. The proceeds of public money creation come to society. The proceeds and risks of commercial lending remain with the financial sector.

People can keep their money safe without having to expose it to commercial risks. Anyone who wants to achieve a return can choose and accept the corresponding risk.

Banks can continue to make profits when providing useful financial services and providing sensible loans. They can no longer profit from money creation while society bears the consequences of their risks.

As a result, less money flows into a financial sector that is growing ever further and more money remains available for work, production and services that contribute directly to our prosperity.

From more money to better money

The power of BeterGeld is not in unlimited money creation. The power lies in a different division of control, revenues and risks.

Money becomes a safe public facility. Credit shall be a voluntary agreement between the parties who bear the proceeds and risks thereof.

The money supply is controlled directly and no longer needs to be managed indirectly through interest rates and ever-increasing debt.

As a result, prices can become more stable, interest charges will be reduced, banks will be given less power and public services will be better financed.

BeterGeld does not make society rich at once. However, it prevents an increasing proportion of our wealth from being needed to maintain the monetary system itself.

The goal is therefore not more money, but money that works better for everyone.