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A Messaage To Our Customers


A message to our customers from the Candid Bank

Dear Customer,
There are many myths about banks and banking. This leaflet explains how we really work.

Myth 1

We don't lend money, we invent it. ‘We lend money’
Oh no we don’t, we go one step better. We invent it. If you did that you would be charged with counterfeiting. But we can do it because we are banks. This is how it works: ‘A’ deposits one dollar with us. On the back of this we are allowed to create a dollar or more to lend to ‘B’, charging ‘B’ interest of course. But we don’t lend ‘A’s dollar to ‘B’. We keep it in the bank reserves.

Here’s the really cunning part: when ‘B’ pays us back the money that could only come into being because she took out a loan with us, we get to keep that too and add it to our reserves! And we keep the interest we have charged her. Economist JK Galbraith has called the system of creating money through making loans ‘so simple it repels the mind’. Some of our more indebted customers find it pretty repellent too.

Myth 2

Trust me! I work at a bank. ‘Your money’s safe with us’
Hardly. If a limited number of you decide to withdraw your money then there is no problem. But if, for example, our bank makes too many bad loans and gets into financial difficulties, there might be a ‘run on the bank’. A large number of our customers will all want to withdraw their deposits at once. In that case only first-comers will get their money back. This is because we are only legally required to keep a tiny, financially insignificant reserve and we are no longer restricted in how much we lend in relation to how much is deposited with us. You just have to trust us – if things go badly wrong you might get your money back... or it might vanish into thin air.

Myth 3

‘Banks fund development’
Quite the contrary, in most instances. For example, many people think that Northern banks lent to Third World governments to help them develop their countries. Actually, by making loans we created money with a stroke of a pen, lent it and then creamed off, and continue to extract, huge amounts of interest paid to us by the South. If indebted governments threaten to break off interest payments, we starve them of further loans which they need because they have become so impoverished.

Myth 4

Works for me! ‘The system works’
For banks, sure. But not necessarily for the rest of you. The financial system that dominates the world today is founded on debt. In Britain, for example, the Government mints only 3% of the money. Banks bring the remaining 97% into existence by making loans, by getting people into debt by various means: mortgages, overdrafts, low-interest loans. The amount of debt in the world today is phenomenal – and so are bank profits.

Myth 5

‘There is no alternative’
Don’t you believe it. There are alternatives. Take social credit, for example. Instead of having nearly all our money created by banks in the form of debt, governments could create more money themselves in the form of credit that can be used on socially useful things. The demand for borrowing would drop as a result, and bank power and profits would decline.

I hope this clarifies matters. If you have any further queries our staff will be happy to advise you.*

Jane Makepeace
The Manager
The Candid Bank

*Or you could refer to an excellent new book by Michael Rowbotham called The Grip of Death: A study of modern money, debt slavery and destructive economics (Jon Carpenter, 1998).

...this little pig had roast beef.

Illustration by Michael Terry The mail plops onto the mat.

Included is a statement from my bank (whoops... slipped into the red, again!) and some junk mail, also from my bank, offering ‘low-interest’ credit. ‘How about that holiday...?’ it appeals, with pretty pictures of blue seas and parasols. How about it? ‘And the caravan you’ve always wanted...’ Excuse me? I check the envelope. Yes, it is personally addressed to me.

How do they do it? Where on earth do banks get all their money from? And why do they keep trying to chuck it at overdrawn me so that I can buy things I don’t really need?

I toss the dream holiday and the more resistible caravan lure into the bin. Out falls a promotional leaflet extolling the bank’s virtues and services.

What, I wonder, would it be like if instead they sent me a leaflet that set out openly and honestly how the system actually works? What would it have to say?

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New Internationalist issue 306 magazine cover This article is from the October 1998 issue of New Internationalist.
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