THE FUTURE OF MONEY Bernard A. Lietaer - library.uniteddiversity ...

anker has an additional veil. In the process of creating money, your
attention will be drawn towards the boring technical aspects, such as
mechanisms to foster competition among banks for deposits, reserve
requirements, and the role of the central bank in fine-tuning the
valves of the system.5' While these technical features all have a
perfectly valid purpose (so does the handkerchief), they all simply
regulate how much fiat money each bank can create (the number of
rabbits that can be pulled out of which hat).
What is particularly inventive about this scheme, that goes back to
pre- Victorian England, is its ability to enable societies to solve the
apparent contradiction between two objectives: creating and
reinforcing the nation- state, while, at the same time, relying on
private initiatives; and competition among them. Specifically, it
provides a smooth way to privatize the creation of the national
currency (theoretically, a public function) as a privilege of the overall
banking system, while still maintaining a competitive pressure
between banks to obtain deposits from clients.
There is also one very important built-in aspect of bank-debt 'fiat'
money systems. Jackson and McConnell have summarized it in a few
words: 'Debt- money derives its value from its scarcity relative to its
usefulness.'" In other words, for a bank-debt-based fiat currency
system to function at all, scarcity has to be artificially and
systematically introduced and maintained. This is one of the reasons
why today's currency system is not self-regulating, but requires the
active role of central banks to maintain that scarcity. One can even
say that central banks compete with each other to keep their currency
internationally scarce. This serves to maintain their relative value and
scarcity as well.
We will see later that there also exist other types of currencies called
mutual credit systems', which are more self-regulating than national
currencies, and the value of which is maintained by the backing of