The Icelandic government is considering a revolutionary proposal that would see only central banks allowed to create money. The idea, known as the Sovereign Money system, is gaining traction in Switzerland, and even has appeal in Germany. A commission in Iceland has submitted a report to Prime Minister Davíð Gunnlaugsson, outlining a proposal for reforming the country’s banking and monetary system. The report suggests that banks should only have the right to create money, which would then be transferred to the central bank. Currently, banks can create money at will, leading to an increase in the money supply and a disconnect from real economic growth.
The Sovereign Money system would limit the creation of money to central banks, such as the European Central Bank or the Federal Reserve in the US. This would prevent banks from creating money out of thin air, as they currently do when issuing loans. The proposal has gained traction in Iceland, where a commission has submitted a report to the Prime Minister, and in Switzerland, where supporters are gathering for a referendum. The system has even gained appeal in Germany, where it is seen as a way to prevent future banking crises.
The current system of money creation has led to numerous banking crises around the world, as banks have created more and more money without regard for real economic growth. The Sovereign Money system would limit the creation of money to central banks, preventing banks from creating money out of thin air. This would help to prevent future banking crises and ensure that the money supply is more closely tied to real economic growth. While the proposal is still in its early stages, it has gained significant support in Iceland and Switzerland, and could be a model for other countries looking to reform their banking and monetary systems.
