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Independent Green Voice

Alistair McConnachie explains how we are losing out
on billions of pounds worth of debt-free public income

The publicly-owned Bank of England

The government obtains money in 3 ways.

One: Seigniorage Revenue
The Issue Department of The Bank of England sells banknotes to the banking system at face value.

The "seigniorage" is the term used to describe the profit after we have subtracted the cost of printing and distributing this cash.

In other words, it creates this money out of nothing and the public purse enjoys the profit. That is perfectly proper and fine for it to do so. We need cash to exchange, and a publicly-owned body of the State is the proper authority to be tasked with this necessity.

These notes are printed on demand -- which is to say, as the public's demand for cash goes down, because of the rise in electronic methods of payment, then less are printed and there is less seigniorage revenue.

To recap: It creates these notes out of nothing, sells them to the banking system, and the profits of this issue go direct to the Treasury.

According to the Bank of England's Annual Report for 2006 we can see that "the profits of the note issue were £1,698 million. These profits are all payable to HM Treasury." 1

So, the important point here to grasp is that in 2006, almost £1.7billion came into society simply as a result of the State printing it. It didn't borrow it from anybody. It simply created it, and we enjoy the profit. That's a good deal!

The only constraint on that source of revenue is demand. If there is no demand for notes, then they won't get printed and we won't enjoy the profit.

Now, when we consider that just after WW2, almost half the total money stock was cash and when we compare that with today, where, with the rise of cheque book and electronic forms of payment, only around 3% is physical notes and coins -- then we can see that we are being cheated out of a massive amount of debt-free public revenue.

Two: Taxation
The government raises money for public spending projects through taxation.

Three: Borrowing
The government borrows money. This is because it always fails to raise enough through taxation in any given year and so the shortfall has to be borrowed.

For example, in 2006/2007, the shortfall, according to the government's Budget 2006 report was £36 billion.

It borrows from individuals, financial institutions and from the private banking system by selling bonds, which are basically IOUs which promise, "If you buy this bond, we'll pay it back to you, with interest, at some future date."

The national debt is the total outstanding on previous years' borrowing requirements. The "interest on the national debt" refers to the interest which must be paid to these bond holders.

From whence does money come to pay the national debt?
It is we taxpayers who foot the bill when the time comes for repayment. It also comes from further government borrowing. That is to say, the government is indebting us all to the private banking system and other financial interests.

Now you might be thinking, "Well, if the government has the power to create money, which it does when it creates notes and coins which it sells to the private banking system, and for which we enjoy the profits, then why doesn't it just create all, or a proportion of, the money to make up for the taxation shortfall?

"Why does it borrow from the private banking system, and add to this national debt, which is indebting us all, and which means that our taxes have to continuously rise?"

And that would be a very good question! In fact, it is the £480 thousand million pound question, which is the UK national debt as we write, in August 2006.

It was the question that Thomas Edison, inventor of the light bulb, answered when he said, "If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good makes the bill good." 2

We've seen that the public purse acquires the seigniorage revenue on the cash issue. This is debt-free as far as the public purse is concerned.

We are saying that we need more debt-free money coming into society. We are not saying that we need more notes and coins -- unless there is a demand for them.

So we say, "Extend this Seigniorage principle!"

If the government is creating cash money debt-free, it can and should create non-cash money debt-free - that is, the account-entry money which exists only in electronic format.

If it does this, it can slowly pay off the national debt and eventually dispense with it entirely. This debt-free money which it created would be spent, not lent, into society.

We call it publicly-created debt-free money -- to distinguish it from privately-created debt-based money. Money by the people, for the people -- the democratic imperative!

Creating money in this way and spending it into society is a perfectly reasonable suggestion.

Vincent Vickers, Governor of the Bank of England between 1910 and 1919, made that exact suggestion when he advocated in his book Economic Tribulation, that, "Any additional supply of money should be issued as a clear asset to the State; so that money will be spent into existence, and not lent into existence." 3

Two main policies are presently "on the table" and both are intended to deliver this reform. Those are, Michael Rowbotham's "Publicly-Created Money"4 proposal and James Robertson's "Seigniorage Reform"5 proposal, which we discuss briefly here.

(1) at p.35.
For the previous year, The Bank of England Annual Report 2005 states that for the year 2004/2005, "the profits of the note issue were £1,618 million (2003/2004 £1,234 million). The change was the net effect of more notes in circulation on average during the year and higher interest rates. These profits are all payable to HM Treasury." (p.34). The 2005 Annual Report is online at
We see, therefore, that the Bank of England is quite open about the fact that the profit from its note issue -- the difference between what it earns by selling the notes at face value to the commercial banks, minus its cost of printing and distributing them -- goes to the Treasury. The profit goes right into the public purse as an effective debt-free input -- the benefit of which is traditionally termed "seigniorage".
(2)  Thomas Edison, quoted in The New York Times, December 6, 1921, in its report "Ford Sees Wealth in Muscle Shoals".
(3)  V.C. Vickers, Economic Tribulation, originally published in Great Britain: John Lane The Bodley Head Ltd, 1941, Ch.7, p.75 and reprinted in the USA: Omni Publications, 1974, p.67.
(4)  Michael Rowbotham, The Grip of Death: A study of modern money, debt slavery and destructive economics, (Charlbury, Oxon: Jon Carpenter Publishing, 1998).
(5)  Joseph Huber and James Robertson, Creating New Money: A monetary reform for the information age (London: New Economics Foundation, 2000). Free download at

Alistair McConnachie is the author of recently released Clarifying our Money Reform Proposals,
a complete 40-page, A4 manual explaining the concept of Money Reform, which can be purchased here.
He has spoken on these issues in the House of Lords, Toronto, Chicago and Dublin.

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