Design of Money is not Neutral

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Bernard Lietaer, Gwendolyn Hallsmith:

"One implicit hypothesis in economic theory is that money is “value neutral.” It is assumed that the type of money we use doesn’t affect the kind of transactions performed, the time horizon of investments, or the relationships among its users. Furthermore, the architecture of our monetary system is ignored—and it is therefore considered an unchangeable “given.” In fact, the money system is the most powerful—and the most overlooked—leverage point for large-scale change in our contemporary society. It is the metasystem that influences human actions and choices on a large scale, because it shapes the fundamental economic incentives of a society. It thereby affects the behaviors of all social institutions—including corporations, governments, civil society—and of the ordinary citizen.

Today’s money system enforces a monopoly of bank-debt money, in which our “national” monies are in fact created through borrowing (with interest) from banks by governments, businesses, and individuals. Governments enforce this monopoly by requiring that all taxes are payable only in this particular privately issued bank-debt currency. This gives huge decision-making power to the banking system. The problem is that these decisions tend to amplify the business cycle.

When the economy is good—in a sector, region, or country—banks tend to make more money available for that particular sector, region, or country, potentially pushing the corresponding economy into an unsustainable bubble. When the economy is turning down, banks reduce credit availability, which amplifies the downturn as well. A textbook case of this process is the U.S. real estate market over the past decade. But boom-and-bust cycles have been repeated in every time period since the establishment of our modern money system in the seventeenth century.

Similarly, short-termism is not a feature of human nature, as is often assumed. Civilizations that had different money systems than ours, such as dynastic Egypt or European countries in the central Middle Ages, spontaneously demonstrated the capacity to make very long-term investments. In contrast, interest-bearing currency will change any rational decision maker into a short-term thinker." (

More Information

Proposals by the authors:

  1. The Terra currency
  2. Commercial Credit Circuit‎