Transcriber: Michele Gianella Reviewer: Stef Kuypers
Have you ever wondered who creates money?
I'm not talking about the coins and banknotes in your wallet.
I'm talking about the digital money on your bank account,
the money you would transfer to your neighbor using an app.
Who creates that money?
Whenever I ask this question,
a lot of people reply with "the central bank" or "the government".
It's not the central bank, and it's not the government.
It's not complicated, though; in fact, it's really simple.
But you might be shocked to hear it.
Your bank creates this money, every time they issue a new loan.
Now you may be thinking like, "Hey, hold on.
Don't banks lend out money from savings from other customers?"
Nope.
Richard A. Werner, a German economist,
ran a €200,000 loan through the computers of a real bank.
No money was moved, no savings were used.
The full €200,000 were created out of thin air,
alongside with the corresponding debt.
Here's how it works.
Imagine we restart the economy from scratch.
You own a business as a carpenter, and there is no money yet.
You heard about this great new thing called money.
It will make trade so much easier.
So, you go to the bank and ask for a loan.
The bank, happy to kickstart the monetary system,
grants you a loan of €100,000,
and you only have to pay €10,000 in interest for that.
Great deal, right?
It's a little bit hard to pay off your debt, but no worries.
Your friend, Sonia, who owns a web development company,
wants to do business with you.
You tell her about this great new thing called money,
and she just has to go to the bank and get some.
She goes, gets herself a loan of €100,000,
puts herself in debt for €110,000,
but now there's €200,000 in your mini economy,
and you can start trading.
Over time, Sonia buys €30,000 of furniture from you.
This puts €130,000 in your account.
You can now pay off your loan.
The bank then books off the €100,000 you borrowed,
which destroys the money.
Yes, that money is now gone.
But the €10,000 in interest,
that's the bank's profit and that still exists.
They now, with that money, buy a website from Sonia,
and you do the same with the €20,000 you have left.
Sonia now has €100,000 in her account.
Yay!
And she can't pay the interest,
because the money for that has never been created.
Does it really work this way?
Does paying off bank debt really destroy money?
Yes.
It literally says so
on the website of the European Central Bank.
Commercial banks can also create so-called "inside money," bank deposits.
This happens every time they issue a new loan.
If all claims held by banks and private debtors were to be settled,
all this created inside money would be reversed to zero.
In layman's terms, this says:
"Banks create money every time they issue a new loan."
When all bank debt is settled, all that money's gone again.
What they don't say is that this money, created by banks,
makes up 95 percent of all the money in our economy.
That means that, if all bank debt were to be settled,
all that money would be gone.
Poof.
(Laughter)
Money cannot exist without debt.
New loans are constantly needed
just to keep money available in the economy.
Imagine what happens if that economy stops growing.
The amount of loans would go down.
If more debt is being paid off than money is lent out,
the total amount of money would shrink.
It's like a bathtub.
When the drain takes out more water than the faucet adds to it,
the tub will eventually be empty.
This is the invisible reason why our economy has to grow.
That's also why the ECB, the European Central Bank,
is trying to get banks to lend out more money.
If lending would stop, it would be a disaster.
No growth, no loans.
No loans, no debt.
No debt, no money.
No money, no economy.
This means that the availability of money in our economy
is tied to the growth of that same economy.
That's like linking the stability of an apartment building
to the number of apartments that are inhabited.
Not the best construction imaginable.
But even in a growing economy,
our current monetary system is inherently unstable.
We all remember the crisis of 2008, right?
Most of you probably think, this is the last one we had.
I'm afraid you're wrong.
The IMF has identified
no less than 390 systemic crises,
worldwide, between 1970 and 2017.
On average, that's more than eight crises per year.
Not the best track record
for something our society depends upon, I'd say.
We have an inherently unstable monetary system
that creates unpayable debt and forces our economy to grow.
Are we having fun yet?
(Laughter)
Hold on to your pants.
There's more,
and you're really going to love this one.
(Laughter)
You might think that greed and selfishness
are things that define us as a human being.
That we need rules and regulations to keep us in check,
less we embark on a destructive rampage.
That's not so.
A growing amount of evidence from anthropological research
has shown that we're kind, caring, and collaborative,
even in times of great distress.
But when it comes to money, we change.
Why is it that there always seems to be enough money
to wage wars, destroy forests, and extract fossil fuels,
but not enough to tackle climate change and growing inequality,
which are some of the most pressing challenges
we face as a human race?
Well, because money is created from debt with an interest,
it steers us toward short term profitability.
And you can make money with money.
Who wouldn't want to take part in that?
After all, doesn't it feel
like you could always use just a little bit more money
just to be on the safe side?
What's wrong with getting a bit richer?
To make getting rich easier,
we've even created an entire construct for it:
the financial market,
a place where money brings in more money.
So let's restart our economy and get rich.
The first part of the scenario remains the same.
You go to the bank, you get out a loan,
Sonia goes to the bank, Sonia buys some furniture from you,
you pay off your debt, the bank destroys the money.
This time though,
instead of the bank using its full profits to buy a website from Sonia,
they now invest €5,000 in the financial markets.
With the remaining €5,000, they buy a cheaper website from Sonia.
You have now heard about the financial market.
Everyone talks about it.
The bank is more than happy to point out all its advantages,
so you want a piece of the action,
and you put €15,000 in the financial market.
With the remaining €5,000, you buy some web services from Sonia.
Sonia now has €80,000 in her account, €30,000 short to pay off the loan.
She defaults and the bank comes for her,
and a long and painful legal procedure lies ahead of her.
(Laughter)
Can you see the consequences of this system?
Can you see that for every euro you have,
someone, somewhere,
needs to be in debt for that euro to exist?
Can you see that every euro invested in the financial market
is no longer available in the real economy,
the economy most of us live in to buy goods and services there?
Unless that money would immediately go back to the real economy,
but then how do you explain the growth of those financial markets?
Can you see wages go down?
And can you feel the reluctance
to give your money to those with unpayable debt?
Research has shown that dealing with money,
just having it in your hands or even thinking about it,
makes us less willing to share and less willing to help others.
Oh! It starts at the age of three, too.
At the age of three, money starts having this influence on us.
Do you want this?
Do we want an inherently unstable monetary system
that forces our economy to grow, livability of the planet be damned?
Do we want an economy where money easily flows
to destructive projects like war and deforestation
but not to combating unjust inequality and climate change?
And do we want a monetary system
that makes us more greedy, more selfish, and less willing to help others?
I, and the people I work with, think we deserve something better.
Now, before I move on, I have a confession to make.
I am not an economist in the classical sense of the word.
I hold a master's in IT.
(Laughter)
(Applause)
(Cheers)
For most of my life, I've been writing algorithms.
Money creation is an algorithm.
It literally runs on computers.
So I decided I'll design a new one,
which eventually led to the "Sustainable Money System."
The two main differences
are that money is not created from debt, and there is no interest.
Let's restart the economy with the new system.
You and Sonia both open an account in the Sustainable Money System.
This entitles you to a guaranteed income of €2,000 per month.
This money is created by the Sustainable Money System itself
without simultaneously creating debt.
The first month, both you and Sonia receive €2,000 on your account.
With this money, Sonia buys some furniture from you.
Next month you receive your next €2,000.
Sonia buys some more furniture from you, and you buy some web services from Sonia.
Let's fast forward 10 months.
You have now both received an extra €20,000.
This brings your account above €25,000.
Now, something happens that initially meets resistance from most people.
You now have to pay a fee on the amount above the €25,000.
This fee is called demurrage.
The €25,000 is your demurrage-free buffer.
You do not pay anything on that amount.
In our example, the demurrage is set at 10 percent, so you pay €100.
Right after paying your fee,
another guaranteed income is added to your account.
Now, the fee you paid is used to pay for public services
like healthcare, education, environmental care, and so on.
If not enough money is available to pay for these public services,
extra money is brought into circulation.
If more money comes in than is needed,
the surplus is taken out of circulation.
This safeguards against inflation.
I know this is a lot to take in,
and I know it probably raises a lot of questions.
I know that the idea of paying money on large savings
initially meets a lot of resistance,
but the financial security of your savings
have been replaced
by the financial security of a guaranteed income,
on top of any wages you might receive.
What we also often hear is,
what if I want to buy something really expensive, like a house?
Imagine you're the person selling the house.
Do you really want, say, €300,000 on your account all at once?
Wouldn't it be more interesting
to receive €2,000 a month for the next 150 months?
This is a potential effect of the system.
Large transfers of money
would most probably be converted into streams of money over time.
The most important aspect of the Sustainable Money System
is that money supply, the availability of money,
is no longer dependent on economic growth.
The amount of money in the economy
scales with the amount of people
that are using the system.
And we can now also get rid of the "lack of money" arguments
that are thrown around when talking about tackling climate change,
because this is clearly a public service.
And therefore, money is no longer an issue.
Inequality is automatically reduced
because getting rich becomes increasingly expensive.
(Laughter)
I told you that our current money easily brings out the worst in us.
The money created by the Sustainable Money System
allows the best in us to emerge.
We observed this during the games that we developed,
where we let people experience the difference
between the two types of money.
With the Sustainable Money System,
people are less stressed, collaborate better,
and pay more attention to a common goal,
while also being able to take better care of themselves,
without huge piles of money.
I will never claim
that the Sustainable Money System will solve all of our problems,
but I do claim it will make solving a whole lot of them a whole lot easier.
It can create a new story for our future,
a story where money is readily available to tackle climate change,
while simultaneously reducing inequality and providing financial security for all.
A story where we can come together again,
where collaboration trumps the "everyone for themselves" strategy,
and where quality of life becomes more important
than the quantity of stuff we possess.
It would be a change of epic proportions.
And how amazing would it be
if we can tell future generations that we were part of that change?
You can be part of that change just by spreading the story,
or contact us if you want to get involved.
Thank you.
(Applause)