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martedì 20 giugno 2017

About "the destruction of money" (myth?): email to Paul Mercier (BCL)

About "the destruction of money" (myth?) in your last paper

June 20, 2017 - h.12:48

Dear Paul Mercier,

in Your last paper (Public debt, central bank and money: some clarifications, May, 2017, pag.41) I read:

"....creation might be compensated by the destruction of money resulting from the possibility that the seller of the bond uses the proceeds of the sale to extinguish a debt initially granted by a commercial bank...".

From our research conducted in Italy such destruction don't really occur. Upon repayment of a debt with a bank the sum involved is received in the bank's main account ("conto accentrato"), while the position is cleared only in the accounting books. The electronic money in the main account is never destroyed and there are not records of such a destruction.

The problem may be as follow: money creation in a bank is never recorded as an inflow in the cash flow account of the same bank, hence it is created "off the books" and upon repayment it is "off-the-books" again (sort of shadow-money). Bank money and book-accounting are two very different things.

See for reference:
Torfason, A. - Cash flow accounting in banks – a study of practice, Göteborgs University, 2014
https://gupea.ub.gu.se/handle/2077/35272

This is why the ECB do not publish it's own CASH FLOW STATEMENT I guess... The Swiss SNB also refuses to publish it and was able to force a law excluding the central bank from the duty of publishing the Cash Flow Statement. It is interesting to note that both central banks are still pretending to follow IAS-IFRS and GAAP rules, and their auditing firms have nothing to tell on this matter...

So the truth is that all the electronic money (FIAT Currency, in EBA words) created by banks - while lending or spending it into circulation - is orphaned and not accounted for both in banks' cash flow account AND in the European registry of scriptural money creation (European Monetary Cadastre).

The misunderstanding arises from a misconceived view that confuses MONEY with DEPOSITS and with LIABILITIES which are three very different things.

The money created by banks can never be a real liability to the bank until it is not a real debt and/or is not recognized as a debt to the national Treasury - a debt that can be called SEIGNIORAGE ON COST-LESS CAPITAL CREATION (click-money).

I would like to receive your comments if any.

Best regards,

Marco Saba
president at IASSEM - http://iassem.org
director at UniMoscow - http://www.imperialclub.net/unimoscow_istituti.htm
member of the scientific board of Vollgeld: http://www.vollgeld-initiative.ch/wissenschaftlicher-beirat/

The answer, below (edited):

h. 14:13 (same day)

Dear Mr Saba,

First of all let me thank you for having read, and with attention from what I see, my paper;

(...omissis...)

I would be delighted to discuss this further with you should you ever have the opportunity to visit Luxembourg.

In any I would express my appreciation for stimulating the discussion and my own thoughts.

Kind regards,

Paul Mercier