The utility of a central bank

The other night at a dinner I was expounding my take on the Western monetary system to some European diplomats when one of them in polite disbelief remarked that my position is demonstrably wrong because national central banks in Europe are non profit entities.

Which gave me food for thought.

My counter question then was: if CBs are non profit entities why do they charge interest on the money that is created on behalf of the treasury?

A CB is given the authority to create a piece of paper for which the input labor and material costs are negligible and yet it charges an usurious price for it.

The question then becomes why do we need a CB at all? Why shouldn’t Treasury create the currency?

The diplomat answered that in a Democracy the decentralization of power is essential to upholding democratic principles thus monetary policy should be left in the hands of an independent entity.

The retort of course is that a CB is not independent at all. Proof of this contention is that not only is a CB is given control of a monetary system that was not submitted to the people for ratification but it also retains the privilege to manage interest rates by presumed objective decree. But 40 years of steadily declining interest rates obviously refute the “objective” aspect of monetary policy because in a healthy economy free from government interference, interest rates would fluctuate depending on market requirements and a steady decline would be impossible.

The most damning evidence of the unnecessary nature of a CB is exactly the fact that it is allowed to create something out of nothing and charge the people for it. It is like charging to breathe air. In this construct, the CB creates a piece of paper worth 1 Euro and gives it to Treasury. But Treasury receives less than the 1 Euro created because now Treasury owes interest to the CB. In turn, this creates the absurd situation whereby if Treasury decided to return all currency to the CB, Treasury is now out of pocket by the amount of the interest. But having returned all the currency, there is no currency left to pay the interest owed. This means Treasury (i.e. the people) is forever enslaved to the CB.

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2 Responses to “The utility of a central bank”

  1. 96 Articles on World News, Latest War Crimes, Health, Getting of the Grid, World Protests & Much More « The Global Awakening Says:

    […] The utility of a central bank – The other night at a dinner I was expounding my take on the Western monetary system to some European diplomats when one of them in polite disbelief remarked that my position is demonstrably wrong because national central banks in Europe are non profit entities. Which gave me food for thought. My counter question then was: if CBs are non profit entities why do they charge interest on the money that is created on behalf of the treasury? […]

  2. Patrick Donnelly Says:

    A palpable hit!

    Unmask this “diplomat”!

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