The Canadian Action Party advocates a dramatic reduction in bank ratios using statutory reserves. At the same time, the proportion of money created by governments (who own the patent on behalf of the people) through the Bank of Canada has to be substantially increased. This will allow the fiscal flexibility necessary to balance their budgets and help finance critically important infrastructure and social projects. Many other problems could be solved by a substantial infusion of debt free government created money. This is what monetary reform is all about.
The fractional reserve banking system and private banks
95% of our money supply is borrowed into circulation and created by the private banking sector as interest-bearing debt through a system called fractional reserve banking. This is a process where private banks can leverage and loan out 10 to 20 times the amount of money in their deposits.
This means nearly all money is simply virtual – computer entries by privately-owned banks which create money out of thin air. They are allowed to lend their capital up to twenty times and collect interest on it each time. Still worse, many of the loans are made to hedge funds and the financial industry which makes huge profits without creating any new real wealth that is tangible or useful.
Drowning in debt, many provincial governments and municipalities turn to the private sector for loans to fund programs beneficial for the people: education, health care, culture, and infrastructure. The interest payments building up over time have drained their treasuries and have kept them in a perpetual cycle of debt. In health care, many government run programs are being cut or sold off to the private sector. In education, vital programs are being cut like sports and music, and school closures are happening all over the country. In order to meet interest payments, the arts and culture programs are having their funding drastically reduced by governments. This is all the result of money created as interest bearing debt lent into existence to municipalities and provinces by the private banks.
The expansion of our money supply is necessary to fund productivity and the expansion of our physical economy. The expansion of our money supply is necessary to adequately fund health care, education, the arts, and infrastructure. But it does not have to be created as interest bearing debt by the private banking system. It can be created as debt-free money by our government through the publicly owned Bank of Canada.
Bank of Canada History
The Bank of Canada, unlike the Federal Reserve in the U.S., is wholly owned by the people of Canada. It was nationalized in 1938 and was used very successfully to fund infrastructure, social programs, health and education for the benefit of all Canadians. It was used to bring us out of the depression; it funded our WWII effort, built highways such as the McDonald-Cartier freeway, public transportation systems, subway lines, airports, the St. Lawrence Seaway, our universal healthcare system, and our Canadian Pension Plan. Unfortunately, since Canada adopted Milton Friedman's theory of Monetarism in 1974, Canada has gone through the private banking sector to finance its needs causing the federal debt to increase nearly 3000%.
After 1975, our federal debt grew for the next 12 years at more than 20 percent per year. It broke the 100 billion mark in 1981 and 200 billion in 1985. While the growth slowed in 1988, our federal debt continued to climb breaking 300 billion in 1988, 400 billion in 1992, 500 billion in 1994. It peaked in 1997 at 556 billion per year. Today our debt is approximately 500 billion. Canada pays approximately 31 billion in interest every year; 171 million dollars a day.
The Solution: Monetary Reform
The CAP believes the creation of money should be shared equally by the private banks and the publically owned Bank of Canada.
We must institute statutory reserves to reduce the amount private banks can leverage their money and return to using the Bank of Canada for a minimum of 50% government created money.
The Bank of Canada Act: Section 18 - listed under Business and Powers of the Bank
The Bank of Canada Act section 18 sets out the banks' authority for lending to our governments. In short, it states that the Bank of Canada may make loans to the Government of Canada or to any of the provinces who in turn may lend to their municipalities.
These loans can be made at nearly zero interest. This would reduce cost of borrowing by over 50% because only the principal will be paid. The Bank of Canada may create the money to finance federal, provincial, and municipal projects nearly interest-free.
The payments on debts to the Bank of Canada find their way back to the federal treasury with the rest of the bank's earnings. In recent years, this important function of the bank has been left, in large part, to rust.
The statutory reserve is the requirement for banks to deposit into the Bank of Canada a percentage of the cash deposits received from the public. These statutory deposits do not earn the chartered banks any interest (i.e. the Bank of Canada does not pay out any interest on this reserve). The percentage rate of the reserve requirement can vary depending on the economy.
A central bank, properly used in the sovereign best interest of a nations' citizens, requires the use of statutory reserves. Previously known as fractional reserves, statutory reserves are an alternative to interest rates for regulating the economy.
Higher interest rates hit everything in the economy, and especially hurt the unemployed and do nothing to inhibit bank lending, which occurs whenever a profit is anticipated regardless of the rate of interest.
Statutory reserves can cool an overheated economy without raising interest rates, and reduce the amount of money private banks can lend into existence as interest bearing debt.
Statutory reserves give the government the use of interest free money to the extent permitted by the Bank of Canada Act.
We must increase statutory reserves and return to the Bank of Canada for a minimum of 50% of Government-created money (GCM). It is essential to maintaining our sovereignty. Government-created money through the Bank of Canada can be used to:
We need to reform the monetary system by reducing interest bearing bank created money and increase zero-interest government created money which can be lent to all levels of governments. This is not inflationary; inflation reflects the amount of money in existence, not who creates it!
Help the Canadian Action Party's campaign for monetary reform and a more prosperous, vibrant society.
© 2013 - Authorized by the Canadian Action Party Chief Agent, Sally Patterson Braun