Debt Bondage Or Monetary Freedom?

Column by James Clayton.

Exclusive to STR

State-sanctioned monetary systems are instruments of control. The individuals who benefit the most will not be easily persuaded to change the arrangement and will attempt to prevent us from using alternative methods or media of exchange.

Canada provides one example. The state, personified in the monarch, gives to the Parliament of Canada the exclusive legislative authority over coinage, currency, legal tender, banking and interest, and the Canadian dollar is declared to be the official monetary unit within the imposed territorial boundaries of Canada.

The Bank of Canada, the country’s central bank, opened in 1935 as a privately-owned institution and in 1938 it became a federal Crown corporation “to regulate credit and currency in the best interests of the economic life of the nation.” The shares of the Bank of Canada and the Royal Canadian Mint are held by the federal Minister of Finance “on behalf of Her Majesty in right of Canada,” who is the embodiment of the Crown and the Canadian state.

The Bank of Canada claims a monopoly on the production and distribution of bank notes, which are not backed by gold. Canada went off the gold standard in 1914, and then went back on it in 1926, but officially suspended the redemption of notes for gold in 1933. Legal tender includes bank notes issued by the Bank of Canada and current coins issued by the Royal Canadian Mint that are intended for circulation in Canada.

The central bank describes a broad measurement of money that includes cash and other “deposits.” Money, according to the Bank of Canada, has taken many forms and can be anything that is widely accepted as a means of exchange, a unit of measurement, and a store of value for future use. The central bank indicates that money is based on a social agreement to recognize value, and the value of money depends on the confidence of those who use it, and it has value because it is widely accepted. But the Bank declares that cryptocurrencies fall short of its own broad definition of money.  

Canadian money in the present system is credit that is generated by making digital accounting entries, and it is systemically scarce because it is created as interest-bearing debt. Total aggregate debt, including principal and interest, is always more than the entire amount of money in existence at any one time. The monetary system is designed to “transfer” wealth by keeping people in a collective state of perpetual debt, but the general assumption is that all of this debt can eventually be paid off if we just cut expenses and work harder, and it doesn’t even seem to matter if the work is unproductive or unenjoyable, as long as we’re paid to do it.

The Bank of Canada, which acts as banker and fiscal agent for the federal government, conveniently believes there should be an independent monetary institution that allows for the separation of the power to create money from the power to spend money, and the Bank's main source of revenue is the interest earned on Government of Canada securities. The central bank and chartered banks are authorized to create money for the federal government by buying its newly issued bonds and treasury bills.

The chartered banks and other financial institutions also create Canadian money by providing credit and “loans” for the public; and most of the money in Canada is actually created by six banks, in collusion with the state and its government, central bank and mint. Legal tender notes and coins, which are merely tangible tokens of credit, are distributed to the financial institutions to satisfy public demand for cash.

Between 1992 and 1994, the federal government phased out statutory non-interest-bearing reserve requirements for chartered banks in Canada, which infuriates those who actually want more government control over banking. The Office of the Superintendent of Financial Institutions was created in 1987 to supervise federally regulated deposit-taking institutions and implement capital adequacy requirements, which are developed at a global level by the Bank for International Settlements in Switzerland.

The Bank of Canada indirectly manages the rate of money growth by influencing short-term interest rates and manipulating the price of credit, which influences decisions to borrow and spend, and affects demand for goods and services. The BoC is also talking about the possibility of negative interest rates.

New money can be “borrowed” into circulation without necessarily bringing more goods and services to the market, which can lead to monetary inflation and price inflation. But the Bank of Canada seriously suggests that Canadian money is a reliable store of value, even though there has clearly been a substantial decrease in the domestic purchasing power of the dollar and a steady erosion of the value of savings since the central bank was established.

Perhaps the entire population hasn’t been completely fooled into thinking that national money is a totally reliable store of value, but it is still the common medium of exchange and the dollar is the ubiquitous unit of measurement. The majority of people in Canada have presumably been deceived into believing that the Bank of Canada is “our” central bank and state-sanctioned money is “our” money; and they generally accept so-called public debt as “our” debt when government spends even more than it collects in taxes and foists its debt onto taxpayers. It’s also likely that most people feel compelled to use state-endorsed money, especially since there is a very real threat of fines, incarceration or loss of property for not paying taxes, which are paid in Canadian dollars.

There may be growing concern regarding the monetary system, but clearly there are different opinions, and there definitely isn’t agreement on the form, function, creation, supply, value or necessity of money. This certainly adds to the confusion, and it’s doubtful that we’ll actually reach a consensus on the nature of the problem or the solution, but there doesn’t need to be uniformity of opinion.

It has to be admitted that there are people who actually want third-party regulation of the creation, allocation and pricing of currency and credit. Maybe they even prefer to use money that originates as interest-bearing debt. They might be willing to consider having a central bank and an official medium of exchange for their community, without forcing anyone to participate in their monetary system, and we would not have to bother trying to change their arrangement or abolish their institutions.

It’s probably a safe bet that the vast majority of people haven’t considered using anything besides official money and aren’t even aware of any alternatives, but options are available for those who are looking for ways to avoid legal tender and state-supported money.

Barter will always be one way to directly swap goods and services, or scarce commodities can be used as a tangible medium of exchange, while some people are comfortable using decentralized digital currencies. Other individuals may want to create their own credit instruments as a promise that they are willing and able to settle debts by providing their goods or services, and only the issuer should be obliged to accept and redeem their IOU at face value and possibly upon demand. Some people might form trading associations and provide interest-free credit to each other to facilitate reciprocal exchange of their products and services.

Mutually agreeable terms, fees and rates can be negotiated for credit and loans. Numerous commodities and other assets can be used to store value and as units of account to measure value, and diverse items can be used as intermediary instruments in trade. Different forms of money can circulate in the market if people are willing to use them, and diverse payment systems and trading arrangements can operate concurrently to transfer value and ownership, without pushing our preferences on anyone else. Various methods and media of exchange can potentially be used in an attempt to withdraw from a state-sanctioned monetary system that is designed to “transfer” wealth by trapping us in a collective state of perpetual debt servitude.