Creation and destruction of wealth in the modern economy (II)


,P, Mr. Towers, when the merchant banking system is allowed to issue bank deposits, which is the medium of exchange with the practice of using checks that we have today, which I think is 95% of our public and private companies, Are banks authorized to virtually issue cash options for cash? It is not like that?.- RIn that sense, bank deposits are real money, yes.

,PIn this sense, they are real money, but, in reality, they are not real money, but credits, accounting accounts, which serve as a substitute for money. RYes.

,P, I think it’s fair to say that in the development of the monetary system, we went from metallic money to using metallic money and paper money, then to metallic money, paper money and banking transactions in the form of deposits. in the form of. Accounts.- RYes.

,PAnd that when we allow banks to issue bank deposits and use them as currency….- R, Banks do not use them as currency; customers do.

,PWell, let’s use it like money.- RYes.

,PTherefore, we allow banks to issue currency options. RYes, I think that’s a very fair statement. [acerca] form the bank.


Cover of the second book of “Acts and Testimonies respecting the Bank of Canada” corresponding to the session held by the “Standing Committee on Banking and Commerce” on March 24, 1939

,P12% of the currency in use in Canada is issued by the government through the Royal Canadian Mint and the Bank of Canada, and 88% is issued by merchant banks in Canada. [la base de] Reserve issued by the Bank of Canada.- R, Yes. As you can see, there is some distortion in taking the total of these items and saying that the Bank of Canada subsidiaries and items are 12% of the total, because Bank of Canada notes and deposits Canada are largely cash reserves are what other deposits remain [de los bancos mercantiles],

,PBut if the issuance of currency and money is a superior prerogative of the government, then this high privilege has been transferred from the government to the merchant banking system at 88%. R.- Yes, but I would say this: that it would be relatively easy to solve from a legislative point of view. Obviously, we want a banking system; I mean, the convenience of having accounts and being able to pay by check is great, and people want that to continue; Therefore, it does not occur to any of us that a banking system should go.


,P, Now that the merchant bank is allowed to create and issue bank deposits as a substitute for currency in a system where this option actually acts as currency, it allows the bank to carry coins or print coins the currency. equal to the power of. RUnder the rules imposed by the government, yes.

,PBut this is the result of this operation.- R, As I said in one of the previous sessions on the same topic, it gives you that power. Naturally, to use it, they must have people’s trust.

,PHowever, under the banking system authorized by Parliament and accepted by the people as common practice, our merchant banks account for 88% of the money used by the government and people of Canada as a exchange. are and emit. RThrough its normal banking activities in the form of investments and loans.

,PBut they create and issue 88% of the money we use. R, “Emit” is exactly the expression I queried; But it happens that through its banking activities in the form of investments and loans, we then see the creation of these passive deposits which largely serve as a medium of exchange in the country”.

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Felix Maria Martin Antoniano

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