Open Letter: To members of the Finance and Expenditure Committee

This letter was sent to members of the Finance and Expenditure Committee on 29 November 2022.

Following up on our submissions to the Finance and Expenditure Select Committee on who creates our money

In 2020 we presented a petition to the Finance and Expenditure committee, of which you were a member, to have the Reserve Bank issue all of our money.

We followed that up in 2021 with a related petition and submission to use the Reserve Bank to directly fund the Covid response rather than using quantitative easing which would inflate asset prices, especially houses.

Events of the last year highlight the unworkability of the current system and its flawed outcomes.

We pointed out in 2020 that the Reserve Bank creates only 2% of our money supply in the form of notes and coins. The balance is created by private banks when people take out loans. Low interest rates encourage people to take out loans and stimulate the economy. Conversely, high interest rates discourage people from taking out loans and constrict the economy.

What we have seen is first, excessive money creation – whether indirectly from years of banks issuing too much credit, or directly via the $55 billion LSAP programme where the Reserve Bank itself created new money for the banking system. And secondly, that this extra money flows into unproductive parts of the economy.

The vast majority of the excess liquidity was pumped into the housing market, pushing up prices that could only be serviced if interest rates remained low. In addition, it contributed to inflation, which is now at a 30-year high. Bernard Hickey’s article “The dirty little secrets inside our nation of inflation” laid responsibility for a significant portion of the inflation at the feet of the Reserve Bank.

With inflation on the rise, the Reserve Bank forced up interest rates to reduce the money in circulation. This made loans taken out when prices were high and interest rates were low unaffordable. Tough decisions are now having to be made relating to paying for essentials such as food or medical bills and servicing mortgage payments. Not every household will be able to cope, and livelihoods will be destroyed.

It does not need to be this way. Our solution would have the Reserve Bank, rather than commercial banks, issue the new electronic money which would be spent directly into the economy by the Government for infrastructure projects. If the economy looked like overheating, then an independent Monetary Policy Committee could instruct the Reserve Bank to reduce the amount of money being introduced. 

This would also ensure that house prices would stabilise, private bank profits would settle at reasonable levels, and households would not be put under stress.

We urge you to take action and raise awareness of the current system and the benefits of having the Reserve Bank issue all of our currency.

Yours sincerely

Don Richards
National Spokesperson
Positive Money NZ Inc

VIDEO: Positive Money’s Parliamentary Select Committee presentation (12:32)

Positive Money national spokesperson Don Richards and Auckland spokesperson Cliff Hall appear before the Finance & Expenditure Select Committee to speak in support of our petition., 4 March 2020.

Dr Geoff Bertram: How do we pay for Covid-19?

A refreshing perspective on how we should manage our public finances. Includes information on the Reserve Bank’s government bond-buying (QE - Quantitative Easing) and argues in favour of direct monetary financing of Government spending....

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