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Funding UBI

The essence of the problem is where does money come from, and who benefits from its creation, the people or the banks?

It is probably redundant to point out the severely skewed outcomes of the current monetary system such as stagnant real wages despite productivity growth, the exponential difference in wealth, and the parabolic accumulation of wealth by banks.

We discuss how bank loans are created, and how banks do bookkeeping.

We distinguish between the currently popularised UBI financed by tax and debt, and a citizens’ dividend which distributes wealth created by citizens.

In contrast to welfare, the dividend does not discourage work, but rather enables initiative, entrepreneurship, and career preferences.

We prove that there have been enormous seizures of wealth by banks through nothing more than sleight of bookkeeping.

What we propose that the bookkeeping leading to this misappropriation be corrected, and that citizens receive a dividend at the rate of growth of the economy to maintain price stability, or to stimulate growth.


Please click here for the report



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Where does money come from

One the one hand we have skills and resources, and on the other there are needs, wants, and desires. Somehow needs cannot be satisfied with available skills and resources without some magical medium called money.

The most common sources of money are mining, debt, and credit.


The essence of mining is the control of introduction of new money (inflation). The medium is not that important, as is could be shells, stones, paper, metals, even virtual tokens. What is important is that the supply cannot be inflated uncontrollably.

Obviously gold mining (inflation of about 3% per annum, and declining) comes to mind, as does bitcoin mining (about 2%, and also declining, but to an asymptotic maximum). Otherwise there have been searching for certain shells, or carving limestone (like rai stones of Yap island), mining salt.

Despite the emphasis that the Austrian school places on mining for managing inflation, it is a blunt instrument that throttles economic growth to the rate of mining production, and encourages hoarding due to its deflationary nature. Expiry (eg. Wörgl) and zakat (Islamic wealth tax) discourage hoarding to maintain the velocity of money.

Even in times of gold standards, fractional reserve banking, financialisation, and derivatives have made up for the insufficient money supply.

Debt (bank money)

Almost all money in use today is debt, issued with a claim on assets (collateral), at compounding interest by private corporations called banks.

So where does (bank) money come from? All bank money is a loan at source. Let’s walk through the loan process at a hypothetical new bank.

The bank starts with nothing, no asset account, and no gold in the safe. A client walks in and requests money for working capital for his/her business (for eg.). The bank complies, and the client leaves with a balance in his/her account, a lien on his/her assets for the amount, and an obligation to pay periodic financing charges (interest payments).

What?? The bank started with nothing, but ended up with a claim on an asset, and a nice income stream. All for a simple bookkeeping journal which even gives the bank a financial asset that can be rehypothecated. How do they get away with this?

Now we know how a small group is exponentially more wealthy than the rest of us. That small group, with access to infinite funding dominates finance and industry. As we see with tech and zombie companies, making profit and having positive cash flow is less important than access to funding.

All (almost) money on the planet is this type of debt to banks which has to be serviced at compounding interest, or face forclosure and dispossession. Governments, corporations, and people are in a constant scramble to find money to pay interest, exploiting labour, and externalising costs onto the environment.

It gets worse. The money for interest payments was not created with the loan, so as interest is paid, money for working capital (in our example) declines, so the client has to keep borrowing more and more just to have enough to carry on business and pay loans. Obviously bankruptcy will result unless they can wrest the money from customers, suppliers, and the environment, to keep on going.

To accelerate bankruptcies, banks cause periodic recessions. Recessions are caused by credit contraction; not weather, sunspots, nor crop failure, but by banks alone.

Modern Monetary Theory (MMT) is in fact not modern, but a rebranding of centuries old chartelism. This is bank money creation gone mad through by means of governments under the illusion that they can borrow infinitely from (private corporations called) banks, as long as it is in the local currency. The theory argues that governments can manage excess liquidity (inflation) by taxes and then destroy the money received, believing that governments do not need tax revenue.

The flaw in MMT is that sooner or later the government cannot pay the financing changes (already the largest single expense in all governments) leading to banks asset stripping nations of pensions, lands, and infrastucture. Conquest by compound interest.


Other than bank money, we have government and private monies. The salient issue with these monies is acceptance/adoption.

Government money

Almost all money governments use is bank money, borrowed at interest, using state pensions and national assets as collateral. This is why banks continue to lend to bankrupt governments knowing that they get to plunder nations by “restructuring”.

A very small percentage of money is government money, ie. notes and coins, and in future, Treasury Digital Currencies (TDC) – not to be confused with Central Bank Digital Currencies (CBDC).

Government money (notes, coins, TDC) are adopted because they can be used to pay taxes, and as legal tender (if the payer refused to accept legal tender, they are supposed to forfeit the payment obligation).

Even though government money is typically issued without interest, increasing the supply is of course an invisible tax on the buying power of savings and wages through inflation. And having governments decide what to spend on and who to deny, invites corruption and distorts free market efficiency.

TDC is terrifying, since it gives government complete insight and control of personal expenditure.

Private money

Just as we cannot be free unless we the people, are the forces, we also cannot be free without private money.

Most private monies are local trading communities using a local currency to attempt to keep more spending local. However these currencies are typically bought with bank money.

Duniter Ğ1 is an excellent example of a private currency created without bank- or government money. Money is created periodically, and introduced into use by being distributed to each member; those with more receiving less and vice-versa.

Mutual Credit is money created on the strength of credit extended by other members who vouch for the recipient. Mutual Credit is private, but transactions are visible to trading partners.

Mutual Credit is a completely free money without interest. It comes into existence as economic activity takes place. There is this no constraint on economic activity and thus there cannot be unemployment since economic activity expands to the extent of available skills.

How it works is that an IOU (a payment) is issued to complete a barter transaction (a purchase). The problem with barter (purchasing) is the coincidence of wants, so we simply issue an IOU for the purchase, with the understanding that anyone (bearer) can redeem it for our products or services in future.

A person’s spending limit is the total of payments- and credits received. Interest-free credits are:

  1. the amounts that others will permit you to spend with them (like running a tab, but paying for the goods/services with the credit received),
  2. or an amount that someone will vouch for your spending elsewhere.

Please see the Q&A page for more answers.


Short of Inches

Once upon a time there was a skilled carpenter who had a reputation for reliability and magnificent furniture for homes and businesses. Over the years he built up a well-equipped workshop, with an adequate warehouse full of selected materials alongside.

One morning he was working on an order to outfit a new store, when he realized he was out of inches (cm’s). He had the tools, materials, and skills to do what the customer required, but was short of inches. No-one in the village had any to spare, so he had to go over to the city to the Inches Bank (IB).

IB required him to sign over his land for collateral. IB lent him inches as debt (a claim on his property) at 10% interest (that means he had to pay 10% of the outstanding inches to the bank each year).

The carpenter received more orders, and needed to expand by employing an apprentice who turned out to be an exceptionally skilled craftsman. They had a good name and plenty of business, so the partner and his wife soon had happy children in a cozy cottage.

Of course with expansion came the need for more inches, which IB lent on the strength of his workshop and warehouse as collateral. Again the inches were issued as debt at interest.

The carpenter diligently paid the interest each year. He could not pay the debt off completely since his business needed the inches to operate. Business was steady so he did not notice that paying interest actually reduced the amount of inches he had available for working capital, since he simply borrowed any shortfall required.

On day he had time to take stock and noticed that the interest payments had grown to be his single largest expense. He also calculated that he had repaid the amounts borrowed many times over through interest, and somehow still owed the original amounts.

The interest payments kept growing ’till one year he was unable to meet the payments, and the bank foreclosed on his warehouse, selling it to a subsidiary at a fraction of what it was worth, simply to pay their amount, contemptuously disregarding the needs of their loyal carpenter client.

The following year the carpenter had to take on extra work, sell off spare inventory, mortgage his workshop, and eventually cut wages (leaving his partner and their new family destitute), just to make the interest payments.

Eventually, of course, the bank sent in the sheriff and the carpenter was on the street with nothing…

Through the miracle of compound interest, a prosperous, growing business, staffed by skilled craftsmen, feeding two families, was destroyed, the owner dispossessed and left destitute.

Even more staggering when we realise that the inches lent to the carpenter in the form of loans, did not even exist before the carpenter walked into the bank. There was no vault full of inches, or inches deposited by other clients. No, it was created out of nothing the minute the carpenter signed over his property as collateral.

This is same situation for business and governments, where the single largest expense at all levels of governments is interest payments, which explains the exponential growth of government debt worldwide.

Currencies deposited into accounts (of individuals, corporations, and governments) by banks as loans, are not legal tender but private money created out-of-nothing by private corporations (only physical coins and notes are legal tender).

The currency to pay interest is however not created (only the principal amount is). So as interest is paid, the amount of currency available to the borrower declines, forcing the borrower to keep borrowing, expanding, and competing in a perpetual struggle for enough currency for working capital, and to pay interest (stave off foreclosure), while grinding up natural- and human resources.

All Levantine religions have banned interest (usury – Christian, riba – Sharia, neshekh – Halakhah)


Beyond Money

Thomas H. Greco, Jr:

Demystifying Money and Liberating Exchange

The mission of this site is to demystify money and liberate the process of exchange by making available important documents and resources from the past and present which can contribute to the advancement of economic democracy, self-determination, and global harmony.

Thomas H. Greco, Jr. is a preeminent scholar, author, educator, and community economist, who, for more than 35 years, has been working at the leading edge of transformational restructuring. He is widely regarded as a leading authority on moneyless exchange systems, community currencies, financial innovation, and community economic development, and is a sought after speaker internationally. He has traveled widely in Europe, Asia, Australia, and the Americas, lecturing, teaching, and advising. He has been a speaker at numerous conferences and has led many workshops and colloquies in 16 countries.

He advises many community and business groups on how they can create “home-grown” means of payment (liquidity) that can save small business and put people back to work by shifting control back to local communities and compensating for the shortage of official currency that banks are supposed to provide.

Cash. Loot. Scratch. Lucre. Bread. Coin. Scrip. Moolah. Green. We all think we know intuitively what money is, and what it can do for us. Tom Greco, director of the Community Information Resource Center, understands and explains money on an eye-popping, fundamental level. Moreover, he provides a roadmap on how to make alternatives to the “legal tender” work for individuals, communities, and local economies.

Money, Understanding and Creating Alternatives to Legal Tender, will set your mental gears spinning with fantastic ideas. This book explains the mysteries and realities of money in clear and accessible prose, and reveals the true workings, and alarming fragility, of our existing financial system. It also describes concrete and realistic actions that individuals, businesses, social service agencies, and governments can take to enhance productivity and purchasing power, to protect local economies from the ravages of globalization, and to strengthen the bonds of community.

Money is a radical critique of our existing financial system, but also a practical and inspirational how-to manual for creating a vibrant and effective community currency system.

You’ll learn:

The truth about how money is created, and what it actually represents

Why we’re all in debt

How the financial system is structured to inevitably transfer wealth from the poor to the rich

How to start a financial revolution in your local community


Can banks create money out of nothing

Richard A. Werner:

This paper presents the first empirical evidence in the history of banking on the question of whether banks can create money out of nothing.

Three hypotheses are recognised in the literature. According to the financial intermediation theory of banking, banks are merely intermediaries like other non-bank financial institutions, collecting deposits that are then lent out. According to the fractional reserve theory of banking, individual banks are mere financial intermediaries that cannot create money, but collectively they end up creating money through systemic interaction. A third theory maintains that each individual bank has the power to create money ‘out of nothing’ and does so when it extends credit (the credit creation theory of banking). The question which of the theories is correct has far-reaching implications for research and policy. Surprisingly, despite the longstanding controversy, until now no empirical study has tested the theories. This is the contribution of the present paper. An empirical test is conducted, whereby money is borrowed from a cooperating bank, while its internal records are being monitored, to establish whether in the process of making the loan available to the borrower, the bank transfers these funds from other accounts within or outside the bank, or whether they are newly created. This study establishes for the first time empirically that banks individually create money out of nothing. The money supply is created as ‘fairy dust’ produced by the banks individually, “out of thin air”.

Quantity Theory of Credit

Werner also proposed the Quantity Theory of Credit, which challenges the MV=PY (M=dPY) formula for not explaining velocity, and where the excess QE money goes (inflation of financial assets, rather than CPI, i.e., starving the real economy despite copious amounts “printed”).

Three theories of banking

How do banks operate and where does the money supply come from? The financial crisis has heightened awareness that these questions have been unduly neglected by many researchers. During the past century, three different theories of banking were dominant at different times: 

(1) The currently prevalent financial intermediation theory of banking says that banks collect deposits and then lend these out, just like other non-bank financial intermediaries. 

(2) The older fractional reserve theory of banking says that each individual bank is a financial intermediary without the power to create money, but the banking system collectively is able to create money through the process of ‘multiple deposit expansion’ (the ‘money multiplier’). 

(3) The credit creation theory of banking, predominant a century ago, does not consider banks as financial intermediaries that gather deposits to lend out, but instead argues that each individual bank creates credit and money newly when granting a bank loan. 

The theories differ in their accounting treatment of bank lending as well as in their policy implications. Since according to the dominant financial intermediation theory banks are virtually identical with other non-bank financial intermediaries, they are not usually included in the economic models used in economics or by central bankers. Moreover, the theory of banks as intermediaries provides the rationale for capital adequacy-based bank regulation. Should this theory not be correct, currently prevailing economics modelling and policy-making would be without empirical foundation. Despite the importance of this question, so far only one empirical test of the three theories has been reported in learned journals. 

This paper presents a second empirical test, using an alternative methodology, which allows control for all other factors. The financial intermediation and the fractional reserve theories of banking are rejected by the evidence. This finding throws doubt on the rationale for regulating bank capital adequacy to avoid banking crises, as the case study of Credit Suisse during the crisis illustrates. The finding indicates that advice to encourage developing countries to borrow from abroad is misguided. 

The question is considered why the economics profession has failed over most of the past century to make any progress concerning knowledge of the monetary system, and why it instead moved ever further away from the truth as already recognised by the credit creation theory well over a century ago. The role of conflicts of interest and interested parties in shaping the current bank-free academic consensus is discussed. A number of avenues for needed further research are indicated.

© 2015 The Author. Published by Elsevier Inc. This is an open access article under the CC BY-NC-ND license

Princes of Yen – 2003New paradigm in macroeconomics – 2005Where does money come from – 2011A Conversation about Economics – 2013

Mutual Credit


The issue is about how money is created

Currently, we have two kinds of money, namely government money and bank money:

1. Government Money

Government money is interest-free notes and coins making up 3% of the money supply

2. Bank Money

The rest of the money supply is bank money, made up of loans, issued as debt at compounding interest by private, for-profit corporations called banks. This money is created out of nothing (there are not trillions of savings lying in a safe somewhere) on the strength of assets proffered by the borrower

Governments do not have money printing presses; they also borrow from banks at compounding interest, staking national assets as collateral. The largest, single expense of all governments is interest payments. Should they default, the nation gets asset-stripped as we have seen happen to many countries

So, in order to have money, we have to constantly pay compounding interest

Commodity money

Gold, Bitcoin, LETS, Community Currencies, etc., all have to be purchased with fiat currency, and then resold for fiat again in order to transact

So they are essentially a non-interest earning stores of value for diversifying, hedging, and speculation
Sometimes used for creating community, and keeping currency local

Gold- or commodity basket based currency is throttled by the rate of production of gold (or commodities), and so cannot dynamically adjust to the needs of economy. This shortage increases the value of the currency, encouraging hoarding, resulting in depressing economic activity. Some approaches propose demurrage to encourage spending

Hour money

There are many examples of hour money, which it is essentially money paid for hours of work, typically community service
This money can then be spent at participating theatres, for eg., when there are unoccupied seats available

Although not commercially scalable, it is an example of creating money without borrowing at interest

Consider these scenarios

Scenario one

In 1970, there was a six month bank strike in Ireland

Contrary to expectations, the economy did not suddenly fail, because payments by cheques and IOUs continued even with no banks to clear them, since the recipients know they were “good” for the amounts from past dealings

Scenario two

An egg farmer repaired his coop with nails and lumber paid for with an IOU for eggs
The hardware store owner then paid for bread with the IOU
And the baker in turn purchased eggs with it

Solution proposed


Banks put a lot of effort into risk management, and credit analysis of borrowers before approving loans
This is what creates trust in bank money

( Of course this does not hide the fact that banks lend many times more than the assets they have. These loans then become assets that are re-hypothecated all over again leading to a massive, perilous derivative overhang, causing financial asset inflation putting housing out of reach for most citizens )

So to garner trust in any new form of money, we need to trust the way new money is vetted

Mutual Credit

With Mutual Credit (MC), the creditor does due diligence of the debtor before acceping payment in the same way that credit is currently established between supply chain participants, between a wholesaler and retailer for example. In this way those being paid by the creditor in turn, trust the money

When to provide credit

  1. Analysing the customer, and granting credit before any transactions (as is common in industry)
  2. Considering ability to pay before individual transactions (in case this might be one of the only transactions done)
  3. Decide whether to accept payment after the customer has been invoiced (with the risk that the service / product has already been provided)

To assist members, the software provides a guide based on revenue, frequency of transactions, account balance, and demographic information in the profile. To bootstrap the money supply, an amount is granted to every new member, which creditors can accept at their discretion

Important to note that there are no interest payments draining the money supply


Members are of course free to broker between savers and borrowers at interest

For larger projects capital can be raised from savers with a prospectus, as normal. Part of the capital can also be covered by asking contractors and vendors to accept MCs as (part) payment, on the strength of the future production from project (electricity, milling, etc.)


These ideas are more eruditely explained by:

  • E.C.Regal
  • Thomas Greco

And this blog (pls note the links in the footer)

Commercial currency

Could we consider a “commercial currency”, alongside government currency (notes and coins), bank currency, and perhaps gold and bitcoin?

During the recession of the 1890’s, a store owner, Silvio Gesell (of Wörgl fame) noticed the need for his products had not abated, but customers could not purchase through lack of money. He concluded that products and services were the supply side, and money the demand side of the economy.

We now know that recessions, and all the unemployment, bankruptcies, and suffering, are caused by credit contraction to main street (we can of course still have financial asset inflation).

We propose another current asset type to accommodate settlement of payables/receivables without the need for a line of credit. Let’s call this account “commercial currency”, alongside bank, petty cash, receivables, inventory, and other current assets.

Nothing changes regarding extension of credit to business partners, but payments are done directly between trading partners, without the need to transfer balances at 3rd party corporations called banks (who have nothing to do with the transaction).

Amounts are simply settled through EDI, REST, etc., and both ledgers updated to show the payment in commercial currency at the nominal amounts.

Two questions arise of course, namely 1) valuation, and 2) trust (and reconciliation).

1) As we re-evaluate inventory, receivables, and other assets on acquisition or termination we would also adjust the “commercial currency” account.

2) One benefit of banks is the trusted 3rd party. A substitution could be a “triple-entry” blockchain that reconciles accounts in realtime between business partners while maintaining privacy. In this way, both partners see the exact same entries, not two sets of accounts. (but of course, it does have to be a blockchain; an EDI VAN could suffice for eg.)

The glaring benefit of this “commercial currency” account is a reduction in financing charges (and risk of coverage), and thus also resistance to recessions.

Thank you


The current monetary easing is deeply indebting nations to banks, leading to either:
1. Hyperinflation (MMT),
2. Dispossession (Banks),
3. Totalitarianism (CBDC),
4. Stagnation (Austrian),
5. Communism (Marx), or
6. Fascism (government by corporation).


1. Bank money is debt issued by private corporations at interest, leading to shortages, defaults, and dispossession (asset stripping) of governments, corporations, and individuals.

2. Government control of money leads to hyperinflation and totalitarianism.

3. Central bank digital currency (or treasury digital currency) would control our lives completely, who can buy what, and even starve anyone.

4. Gold standard/Austrian (or Bitcoin), in an attempt to stop inflation, chokes the economy through scarcity and hoarding.

5. Crypto-currencies, local currencies, LETS’s, Time Banks, gold coins, etc., all require debt (bank) money first, in order to purchase them.


Mutual Credit provides money for economic activity without interest. This money does not constrain the economy through shortages, and credit contraction (as fiat does).

Removing the constraint of money means full employment becomes the capacity of the economy, freeing people and corporations from destructive competition for finance charges (interest), to focus on caring for each other, maintaining the planet, and fulfilling career choices.

Network of Trust

Ryan Fugger:

The Ripple service allows payments between interconnected friends and businesses.

Normally, if your friend Alice owed you $10, she would have to pay you back before you could make any use of that debt. If you were creative, however, you might be able to pass the debt on to someone else who knew and trusted Alice, in exchange for something you wanted. For example, you might be able to get a book you want from Bob, who also knows Alice, in exchange for letting Alice know that she now owes Bob $10. Instead of money, you used Alice’s IOU to pay Bob. Alice acts as an intermediary between you and Bob.

The Ripple service does the same thing, only it takes the idea one step further. What happens if you want to get a haircut from Carol, who doesn’t know Alice at all? Your $10 IOU from Alice isn’t useful because Carol being owed money by Alice doesn’t mean anything to Carol. But suppose you had a way to find out that Bob, who knows Alice, also knows Carol. You could talk to Bob and arrange for him to take Alice’s IOU in exchange for giving his own IOU for $10 to Carol. Since Alice owes him exactly what he owes Carol, Bob is even on the deal. Both Alice and Bob act as intermediaries between you and Carol.

And that’s how the Ripple service works. You create a profile inside your financial services account and indicate who you know and how much you trust them by connecting to people by email address and giving them credit limits. Then whenever you want to make a payment to another Ripple service user using only friendly obligations, the Ripple service finds a chain of intermediaries connecting you to the person you want to pay, and records the payment in each intermediary’s account all the way down the chain. You end up owing one of your “neighbours”, and the payment recipient ends up being owed by one of her neighbours.

Please note: This blog discusses the original Ripple and RipplePay, and not the current Ripple,, RippleLabs, RippleNet, XRP, etc.

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Introductions to Ripple by Romualdo Grillo

Interest- and Inflation-free money

Margrit Kennedy:

Money is one of humankind’s most ingenious inventions – and also one of its most dangerous. Interest and Inflation Free Money offers a clear, simple explanation of how financial policies shape the global markets – and how interest wrecks cultures, ecosystems, and economic systems. In particular, it reveals the hidden flaws in our money system by identifying and exploring the far-reaching consequences of four basic misconceptions that there is only one type of growth; that we pay interest only if we borrow money; that we are all equally affected by interest and that inflation is an integral part of free market economies.

Interest and Inflation Free Money then develops a bold but realistic set of reforms to the money system that would encourage the equitable exchange of goods and services without fueling interest or inflation. Described with remarkable lucidity, these reforms are based on historical and contemporary monetary experiments and institutions, including the Worgl experiment, Great Depression-era currencies, modern-day barter/local currency systems, the highly successful JAK credit unions, and more.

Interest and Inflation Free Money is essential reading for everyone concerned with economic impacts on societies, the environment, and even world peace. Without a more equitable money system, little constructive change is possible.

Creating an Exchange Medium That Works for Everybody and Protects the Earth