Welcome to HSCB-- no, not HSBC, the global banking corporation.
This is Hole Street Central Bank,
on Hole street in Walthamstow in Northeast London.
It's not really a central bank.
They're an arts project.
But they have one thing in common with central banks,
and that's that they print their own money.
Let's go inside and see how.
Oh.
Hello.
So this is the bank?
Yes.
Hi.
Welcome.
Hi.
So we're making our own currency of 5, 10, 20s, 50s,
now actually 100s and 1,000-pound notes.
And people come in, buy them as artwork/bank notes.
And the money that we're raising is
shared between the causes that are featured on the note.
The food bank, homeless kitchen, youth project,
and primary school, people that we feel
are fighting the feel of our current economic system
that isn't working.
And the other half of the money we raise
will go into a fund to buy up and abolish a million pounds
of local payday debt.
So let's talk about it.
How does money actually--
how is it created?
How does it come into being?
All money is created as credit.
All money begins as a loan to someone.
We have banks that can create money out of thin air.
But they can't do that unless we, the people, borrow.
We, firms or individuals, actually apply for the loan.
When we're nervous and worried about the economy,
we don't borrow.
But when we are feeling euphoric,
when things are going well, we think, wow, let's borrow.
And let's go and buy that house in London, or that flat.
And so the money supply contracts
and expands depending on the level of confidence
that we have to borrow.
And when we lack that confidence,
the money supply contracts.
What went wrong in the crisis?
You had an increasing debt.
But the debt was in order to finance activities
that didn't actually create the real economic value that
could service that debt in the long-term.
The really important thing in creating new money
and in creating new debt is to ensure, in the risk assessment,
that that loan, that debt, is going to generate activity,
which will generate income, which can then
be used to repay the loan.
And the fact that too much of the debt that's created
becomes bad debt, that's another part of what these artists here
are trying to teach us.
Because they use the proceeds of these artworks,
these counterfeit notes that are artworks,
in order to redeem old debt.
And they were telling us that they
could redeem a million pounds worth, face value, of debt.
For something like 25,000 pounds.
Which kind of goes to show how bad those lending
decisions must have been in the first place.
Exactly, yes.
People are, around the world, thinking
about quite radical reforms.
Yes.
One thing is to try and stop or end this traditional way
that private banks create money, and make
it a monopoly of national central banks.
I don't like that.
And the reason is that while it's--
our system is quite fragile.
Nevertheless, it's profoundly democratic.
You know, we, as individuals, decide
on the creation of money.
The banks play an important role in that.
But if there were no borrowers, the banks would be powerless.
If we take that crucial role and give it to a committee of men--
and they're bound to be men--
at the top of the world, to decide,
oh, this is how much money the nation needs,
it becomes quite authoritarian, in my view.
And what you need is public authorities, a central bank,
the treasury to guide banks in their lending,
and to demand that private banks should
lend for productive income-generating activity,
and not for speculative non-income-generating activity.
Banks, when they decide how much to lend,
they have an incentive to lend more, and more,
and more when things are already--
Yes.
--working well, when people are optimistic.
Yes.
And then they stop lending when things are bad.
But probably what we ideally want is the opposite.
We want to rein in lending a bit when
people are over-optimistic, and then
push it up in the downturn.
So, the money creation system is a public good.
It's like our sanitation system.
It cannot just be left to market forces.
And I agree with you that banks become euphoric
and expand too much, and then contract
when it's mostly needed.
So when there is a slump, there's
nothing you can do to persuade people to borrow
because they're nervous.
They're as timid as a mouse.
And that is the time for the roaring lion that
is the public sector to spend.
One thing in which central banks, real central banks,
are similar to this artistic central bank
is that they have actually been printing their own money a lot
since the crisis, precisely to do
what you said, to try to make up for the lack of borrowing
and money creation in the private economy.
Should central bank money creation,
which isn't physical notes, but central bank reserves,
should that have been spread more widely?
The central bank that was invented
is part of a total monetary system to look after the banks,
to look after the finance sector, not to look after you,
and I, and the High Street.
That's the role of the private banking sector.
And the private banking sector has failed in that dismally.
And for some reasons, as I've said already,
the conditions are not good for lending.
And people are nervous about borrowing
because the conditions are not good.
And that is the failure of government,
for refusing to play the part that government
has to play in a slump.