2 days, 2 weeks, 2 months: A proposal for sound money

The Cobden Centre have published a pamphlet I've written outlining a policy proposal to repair the financial system. It is based on the work of Kevin Dowd and Richard Salsmann. The basic plan:

Over 2 days the aim is to ensure that all operating banks are solvent

1. Deposit insurance is removed – banks will not be able to rely on government support to gain the public’s confidence
2. The Bank of England closes its discount window
3. Any company can freely enter the UK banking industry
4. Banks will be able to merge and consolidate as desired
5. Bankruptcy proceedings will be undertaken on all insolvent banks
   1. Suspend withdrawals to prevent a run
   2. Ensure deposits up to £50,000 are ring fenced
   3. Write down bank’s assets
   4. Perform a debt-for-equity swap on remaining deposits
   5. Reopen with an exemption on capital gains tax

Over 2 weeks the aim is to monitor the emergence of free banking

6. Permanently freeze the current monetary base
7. Allow private banks to issue their own notes (similar to commercial paper)
8. Mandate that banks allow depositors to opt into 100% reserve accounts free of charge
9. Mandate that banks offering fractional-reserve accounts make public key information (these include: (i) reserve rates; (ii) asset classes being used to back deposits; (iii) compensation offered in the event of a suspension of payment)
10. Government sells all gold reserves and allows banks to issue notes backed by gold (or any other commodity)
11. Government rescinds all taxes on the use of gold as a medium of exchange
12. Repeal legal tender laws so people can choose which currencies to accept as payment

Over 2 months the aim is the end of central banking

13. The Bank of England ceases its open-market operations and no longer finances government debt
14. The Bank of England is privatised (it may well remain as a central clearing house)

This is not a pre-emptive plan, but it is a set of guidelines that could - in the event of another financial meltdown - be seen as an alternative to efforts to preserve the status quo through nationalisation, bailouts, and monetary pumping. My desire is not to convince anyone that the above is correct. It's to challenge all sides of the debate to deepen their awareness of alternative monetary regimes, and force those who support socialised banking to provide better and stronger rationale. Regular readers of this blog will know that I favour radical transition to gradualism, and believe that constitutional moments provide opportunities for reforms. This is my attempt to ensure that if we see a repeat of Lehman I can't be accused of standing idly by, offering criticisms but no alternatives. This is an alternative, and deserves to be considered. As always, comments very welcome.

Download the pamphlet here (.pdf)

Comments

[JC]

Loving the article - some very sensible banking reforms, practical and innovative suggestions - as well as a few more challenging ideas. There are some slightly more extreme ideas on 'rehab for the banking industry and City of London' developed at the Big City brainstorm held by City University London - you might like to see the video they've made on their website http://creativity.city.ac.uk
inspired thinking or too radical?