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18
Keeping the Secret
But surely if things are as bad as I say someone would have told us? Why have experts at
the Reserve Bank, economists and politicians not warned us of these problems?
Even though the New Zealand government technically owns the Reserve Bank,
and has done so since 1935, the truth about money creation has to be extracted from them
using considerable persistence. During 2000, after reading widely on money creation, I
had a six­month correspondence with the Reserve Bank to find out how money is created
in the country. Since the replies were either hard to understand or contrary to what I had
just read, 16 letters were exchanged in all. Several times I almost gave up in despair. It was
easy to become confused and I began to feel that the bank was either protecting its craft or
trying to keep a blanket of ignorance over the creation of money. For instance, it insisted
many times that banks only lend out their deposits, when what it really meant is that they
‘create and lend’. Before Murray Sherwin, the deputy governor of the Reserve Bank,
finally acknowledged that the banks in the country as a whole had been responsible for
doubling the money supply in a decade, he wrote: ‘The key point for you to keep in mind
is that banks and other financial institutions have no magical capacity to “create” money
and wealth at their own behest. When a bank lends you money, it is lending the money of
its depositors.’ 42
Some other central bankers have not been quite so reticent. In 1939, for example,
Graham Towers, governor of the Bank of Canada, testified before the Commons Banking
and Finance Committee: ‘The banks, of course, do not lend out their depositors’ funds.
Each and every time a bank makes a loan, new bank credit is created. Brand new
money.’ 43
And Lord Josiah Stamp, president of the Bank of England in 1920, was more blunt
still: ‘The modern banking system manufactures money out of nothing. The process is