On May 23rd 2018, the launch of Positive Money Europe took place in Brussels through the successful event ‘Time to Rethink the ECB’. The event featured a great host of speakers including former governor of the Bank of Spain Miguel-Ángel Fernández-Ordóñez, anthropologist and professor in law Annelise Riles, Spanish MEP Jonas Fernandez, MEP Molly Scott-Cato, Boris Kisselevsky, ING Economist Teunis Brosens. At the occasion of this launch conference, participants debated on whether and how the European Central Bank should be reformed.
In his introductory remarks, the head of Positive Money Europe Stanislas Jourdan sketched out the main reasons why there is a need for a nonprofit organisation based in Brussels to focus on the European Central Bank (ECB). He stressed the central role the ECB had played during the ‘Euro Crisis’ and how it had contributed to deepening the crisis in Greece and Ireland.
Jourdan gave an explanation of Positive Money Europe’s intention – to create a critical but constructive voice on matters related to monetary policy and the European Central Bank. “We want to channel the criticism against central banks into constructive political demands.” Jourdan said. As such Positive Money Europe will be launching advocacy campaigns in favour of helicopter money, digital currencies, hardwiring sustainability into the ECB’s policies and reforming the accountability framework of the ECB.
Our prominent speakers provided much further reasons why there is a need for an organisation like Positive money Europe.
How digital money can restore a free-market banking system
First to speak was the former governor of the Bank of Spain, Miguel-Ángel Fernández-Ordóñez who outlined the case for a central bank digital currency, a topic which Positive Money has been pioneering in the past. According to the former governor, the main problem of the monetary system is that money is made fragile because it is based on credit and debt. Ordóñez proposes the introduction of a central bank digital currency, in effect allowing citizens to convert their deposits into “pure money” stored in accounts at the central bank.
As a former regulator, Ordóñez is well-placed to say that “there is no other sector of the economy that is more protected, regulated and privileged than banking”. However ineffective, the high degree of regulation is required because of the very design of the monetary system. “Because [bank] money is fragile it requires public protection. Money would not exist without such protection.” he said.
By reforming money, we can reform banking. Ordóñez argues a digital currency would remove the need for complex banking regulation. Policies such as deposit insurance, or liquidity provision by central banks would not be needed. As a results, the banking sector could once operate as a truly free market, where banks are allowed to fail without jeopardizing the entire economy. Former member of the ECB’s Governing Council, Ordóñez stressed that this proposal doesn’t mean more power for the State. “This is the opposite, he said, we would have more market in banking and less power for the central bank.”
Rebuilding the legitimacy of central banks
As an anthropologist and professor in law, our second keynote speaker Annelise Riles has spent the last 20 years studying the field of central banks. During that time, she has witnessed “a deep problem of democratic legitimacy for central banks which is impeding them to do their work.”
According to Riles, there is a “massive disconnect and a lot of mistrust” between central bankers and the public. While many factors are at play, she insisted that “this crisis of legitimacy is also partly a clash of cultures, between the internal culture of central banks and the world of the public at large.”
In essence, today’s central banks models are built on the notion that some decisions such as monetary policy are best taken by unelected technocrats sitting in independent institutions. However this model is currently falling apart because central bank policies aren’t working so well anymore, and their effects are unequally affecting society. In addition, the public have also seen that central banks are not so independent when it comes to dealing with crisis resulting in them questioning the necessity of such independence. “Central bankers are not machines, they are culturally conditioned human beings.” Riles said.
The crisis of central banks’ legitimacy isn’t just a an academic problem but a permanent threat to the entire financial system. “When the next crisis occurs – and we know it will sooner or later – its resolution will depend on the the legitimacy of central banks to act forcefully,” Riles explained.
“Central banks need to create a new legitimacy story, in which central banks can honestly legitimize themselves for their proven ability to listen to the public”
This is why we need to rebuild the legitimacy of central banks. As Riles emphasized, this is a truly challenging task. Central banks need to create a new legitimacy story, in which central banks can honestly legitimize themselves for their proven ability to listen to the public.“ Central banks already engage a lot with market participants, both formally and informally. So it must be possible to do so with the public too.”
However, this gigantic task also requires better engagement from the public, universities and NGOs. “We all understand that citizenship is a duty, not just a right alone, and so is financial citizenship.” Riles concluded.
In the concluding panel, Spanish MEP Jonas Fernandez outlined the recent progress he made in his role of rapporteur for the Parliament’s annual report on the ECB which was adopted by a large majority in February. For example, the Parliament introduced the notion that the ECB’s theoretical framework needs to be re-analyzed – not an easy point to agree on between political groups, Fernandez confessed. The European Parliament also adopted an important resolution which says the ECB is bound by the Paris agreement on climate change. Finally, Fernandez underlined the important role of Positive Money Europe in looking at the system from “a different horizon” than us as politicians.”
MEP Molly Scott-Cato stressed the case for aligning the ECB’s mission with sustainability and climate change goals. “It’s increasingly clear that markets cannot solve ecological problems. We need strong political intervention and perhaps the monetary system is closely involved in this issue.” she said. Molly Scott-Cato has been pioneering the idea of a “green quantitative easing” through a report she commissioned in 2015.
“Why do we have our central bank creating money through QE and sending it in the direction of fossil fuel companies when we know we need to go in the exact opposite direction? This point is absolutely uncontroversial.” she said.
Speaking for the European Central Bank, Boris Kisselevsky stressed his agreement with the fact that the ECB should be open-minded and engaging citizens. “In essence the ECB does one thing: it creates trust into our currency and to our monetary policy.” he said. “After the financial crisis it is true that many things have changed, including for us. This is why we are trying to do more outreach and to speak more to the public.” The ECB has taken several initiatives in this direction including gender-balance targets and different programmes to outreach citizens in schools.
“If we were to create the monetary system today from scratch, we would probably have a central bank digital currency”
Finally, ING Economist Teunis Brosens stressed the importance of debating those issues. “Even within the bank i’m working in, I don’t think all employees would correctly answer that banks create money. So yes we need more education on this.”
Do we need to establish a sovereign money system? “If we were to create the monetary system today from scratch, we would probably exclude physical cash and have a central bank digital currency.” Brosens admits. However, he insisted that making such transition today would be very complex or even dangerous, especially if it leads to a deregulation of the financial system. In addition, Brosens emphasized that poor credit allocation and shadow banking is the main driver of financial crises. By focusing on protecting deposits, the sovereign money proposal misses an important problem of the financial system.
The event covered an impressing number of issues ranging from central bank governance, to digital currencies, climate change and financial stability.Those debates were obviously unexhausted by the time we the conference ended. Fortunately, there is now an organisation dedicated to providing intellectual stimulation and constructive proposals to those debates and connect all stakeholders interested in the issue. It is only the beginning!
Take part in Positive Money Europe’s journey by signing up here.
You can watch the panel debate and the Q&A here: