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Reinventing Banking: From Russia to Iceland to Ecuador By Ellen Brown. December 11, 2015

Global developments in finance and geopolitics are prompting a rethinking of the structure of banking and of the nature of money itself. Among other interesting news items:

  • In Russia, vulnerability to Western sanctions has led to proposals for a banking system that is not only independent of the West but is based on different design principles.
  • In Iceland, the booms and busts culminating in the banking crisis of 2008-09 have prompted lawmakers to consider a plan to remove the power to create money from private banks.
  • In Ireland, Iceland and the UK, a recession-induced shortage of local credit has prompted proposals for a system of public interest banks on the model of the Sparkassen of Germany.
  • In Ecuador, the central bank is responding to a shortage of US dollars (the official Ecuadorian currency) by issuing digital dollars through accounts to which everyone has access, effectively making it a bank of the people.

Developments in Russia

A significant debate is underway in Russia since imposition of western financial sanctions on Russian banks and corporations in 2014. It’s about a proposal presented by the Moscow Patriarchate of the Orthodox Church. The proposal, which resembles Islamic interest-free banking models in many respects, was first unveiled in December 2014 at the depth of the Ruble crisis and oil price free-fall. This August the idea received a huge boost from the endorsement of the Russian Chamber of Commerce and Industry. It could change history for the better depending on what is done and where it further leads.

Much as with Islamic banking models that ban usury, the Orthodox Financial System would not allow interest charges on loans. Participants of the system share risks, profits and losses. Speculative behavior is prohibited . . . . There would be a new low-risk bank or credit organization that controls all transactions, and investment funds or companies that source investors and mediate project financing. . . . Priority would be ensuring financing of the real sector of the economy . . . .

Iceland’s Radical Money Plan

Iceland, too, is looking at a radical transformation of its money system, after suffering the crushing boom/bust cycle of the private banking model that bankrupted its largest banks in 2008. According to a March 2015 article in the UK Telegraph:

Iceland’s government is considering a revolutionary monetary proposal – removing the power of commercial banks to create money and handing it to the central bank. The proposal, which would be a turnaround in the history of modern finance, was part of a report written by a lawmaker from the ruling centrist Progress Party, Frosti Sigurjonsson, entitled “A better monetary system for Iceland”.

“The findings will be an important contribution to the upcoming discussion, here and elsewhere, on money creation and monetary policy,” Prime Minister Sigmundur David Gunnlaugsson said. The report, commissioned by the premier, is aimed at putting an end to a monetary system in place through a slew of financial crises, including the latest one in 2008.

Public Banking Initiatives in Iceland, Ireland and the UK

A major concern with stripping private banks of the power to create money as deposits when they make loans is that it will seriously reduce the availability of credit in an already sluggish economy. One solution is to make the banks, or some of them, public institutions. They would still be creating money when they made loans, but it would be as agents of the government; and the profits would be available for public use, on the model of the US Bank of North Dakota and the German Sparkassen (public savings banks).

In Ireland, three political parties – Sinn Fein, the Green Party and Renua Ireland (a new party) — are now supporting initiatives for a network of local publicly-owned banks on the Sparkassen model. In the UK, the New Economy Foundation (NEF) is proposing that the failed Royal Bank of Scotland be transformed into a network of public interest banks on that model. And in Iceland, public banking is part of the platform of a new political party called the Dawn Party.

Ecuador’s Dinero Electronico: A National Digital Currency

Ever since 2000, when Ecuador agreed to use the US dollar as its official legal tender, it has had to ship boatloads of paper dollars into the country just to conduct trade. In order to “seek efficiency in payment systems [and] to promote and contribute to the economic stability of the country,” the government of President Rafael Correa has therefore established the world’s first national digitally-issued currency.

Unlike Bitcoin and similar private crypto-currencies (which have been outlawed in the country), Ecuador’s dinero electronico is operated and backed by the government. The Ecuadorian digital currency is less like Bitcoin than like M-Pesa, a private mobile phone-based money transfer service started by Vodafone, which has generated a “mobile money” revolution in Kenya.

Western central banks issue digital currency for the use of commercial banks in their reserve accounts, but it is not available to the public. In Ecuador, any qualifying person can have an account at the central bank; and opening one is as easy as walking into a participating financial institution and exchanging paper money for electronic money stored on their smartphones.

Ecuador’s banks and other financial institutions were ordered in May 2015 to adopt the digital payment system within the next year, making them “macro-agents” of the Electric Currency System.

Electronic money will stimulate the economy; it will be possible to attract more Ecuadorian citizens, especially those who do not have checking or savings accounts and credit cards alone. The electronic currency will be backed by the assets of the Central Bank of Ecuador.

That means there is no fear of the bank going bankrupt or of bank runs or bail-ins. Nor can the digital currency be devalued by speculative short selling. The government has declared that these are digital US dollars trading at 1 to 1 – take it or leave it – and the people are taking it. According to an October 2015 article titled “Ecuador’s Digital Currency Is Winning Hearts!”, the currency is actually taking the country by storm; and other countries in Latin America and Africa are not far behind.

Banking Moves into the 21st Century

The catastrophic failures of the Western banking system mandate a new vision. These transformations, current and proposed, are constructive steps toward streamlining the banking system, eliminating the risks that have devastated individuals and governments, democratizing money, and promoting sustainable and prosperous economies.

German public bank The German banking system is structured in three different pillars, totally separated from each other.[1] They typically differ in their legal form and the ownership.[2] Private banks, represented by banks like Deutsche Bank or Commerzbank as listed companies, and Hauck & Aufhäuser or Bankhaus Lampe as less known private companies, are part of the first tier. The second tier is composed of co-operative banks like the numerous Volksbanken and Raiffeisenbanken.[1] They are based on a member-structure where each member, independently from its capital share, has one vote.[3] The third tier consists of public banks, that are a legally defined arm of the banking industry in Germany and separate into two main groups.

The German Savings Banks Finance Group (Sparkassen-Finanzgruppe) is the most numerous sub-sector with 431 savings banks using the Sparkasse brand,[4] 8 Landesbanken including the DekaBank using separate brands[5] and 10 real estate financing banks using the LBS brand.[6] The Deutscher Sparkassen- und Giroverband (German Savings Banks Association, DSGV) represents the interests of the Sparkassen-Finanzgruppe on a national and international level concerning law and the financial services industry. It also coordinates, promotes and harmonises the interests of Sparkassen.

Based on OECD studies, the German public banking system had a share of 40% of total banking assets in Germany.[8] This shows the important and significant role of this group of banks in Germany.

Sparkassen Savings banks in German-speaking countries are called Sparkasse (pl: Sparkassen). They work as commercial banks in a decentralized structure. Each savings bank is independent, locally managed and concentrates its business activities on customers in the region it is situated in. In general, savings banks are not profit oriented. Shareholders of the savings banks are usually single cities or numerous cities in an administrative district. Some 6 savings banks (Bordesholmer Sparkasse AG, Spar- und Leihkasse zu Bredstedt AG, Sparkasse Bremen AG, Hamburger Sparkasse AG, Sparkasse zu Lübeck AG, Sparkasse Mittelholstein AG) are independent from municipalities; their association is the Verband der Deutschen Freien Öffentlichen Sparkassen.

Sparkasse Bank in Germany en Deutsch; a small savings bank in the district of Hannover.

Finally, One Banker Gets Sizable Jail Term. But Will Others Follow? Sentence in LIBOR manipulation case is 'one of the harshest penalties meted out against a banker since the financial crisis'

"A message needs to be sent to the world of banking," said UK Judge Jeremy Cooke on Monday as he handed down a 14-year sentence to former Citibank and UBS trader Tom Hayes, convicted in a London court on eight counts of conspiring to manipulate a global benchmark interest rate known as LIBOR.

But Hayes claimed he was taking part in an "industry-wide" practice, the Guardian reports. "He described the broking market he worked in as the wild west, a place with no rules and where relationships relied on lavish entertainment. He said it was this high-pressure environment which took its toll on him, prompting him to threaten brokers and pick fights with colleagues to move interest rates to aid his trading."

The UK jury's unanimous verdict, followed about an hour later by Cooke's 14-year prison sentence, is said to be "one of the harshest penalties meted out against a banker since the financial crisis." The Wall Street Journal has a run-down of how Hayes' sentence stacks up against others who have been convicted of white-collar crimes.

"The United States spends over $87 billion conducting a war in Iraq while the United Nations estimates that for less than half that amount we could provide clean water, adequate diets, sanitations services and basic education to every person on the planet. And we wonder why terrorists attack us." - John Perkins, Confessions of an Economic Hit Man

Email from Bernie Sanders:

It's time to break up the banks.

The greed, recklessness, and illegal behavior on Wall Street drove this country into the worst recession since the Great Depression. Their casino-style gambling has helped divert 99 percent of all new income to the top one percent. And it has contributed to the most unequal level of wealth and income distribution of any major country on earth.

In the midst of all of this grotesque inequality sits a handful of financial institutions that are still so large, the failure of any one would cause catastrophic risk to millions of Americans and send the world economy into crisis.

If it's too big to fail, it's too big to exist. That's the bottom line.

I introduced legislation in Congress that would break up banks that are too big to fail. Can you sign on as a citizen co-sponsor of my bill to show your support?

Elizabeth Warren on the difference between a recreational drug user and a banker

'Biggest Banking Leak in History' Details Nefarious Tactics of Global Tax-Dodgers Whether revelations result in crackdown on shadow banking system and tax avoidance by the wealthy and by multinational companies remains to be seen


"...maybe you've wondered why the banking laws of our great democracy are written in such a way that they allow bankers to rob you and me -- such daylight robberies as their endless and always-rising fees, so-called privacy provisions that let them sell our personal financial information, etc. etc. It will all become clear to you if you go to the swank Rainbow Room in Manhattan on the night of August 30th, the opening day of the Republican National Convention.

"There you'll see Rep. Michael Oxley, chairman of the Financial Services Committee that supposedly oversees the banking industry. He'll be the guest of honor at a party paid for by J.P. Morgan Chase, Credit Suisse First Boston, and the other big banks that profit enormously from Chairman Oxley's willingness to legalize their robbery -- banks that currently have bills before him to allow even more robbery. The banks are paying up to $100,000 each in tribute to the guy who writes the banking laws" (Jim Hightower. The hightower Lowdown, June 2004: 5).


Kane then lands this bombshell: “The warranted rate of return on the stock of deeply undercapitalized firms like Citi and B of A [Bank of America] would have been sky high and their stock would have been declared worthless long ago if market participants were not convinced that authorities are afraid to force them to resolve their weaknesses.”

Kane goes on to say that it is “shameful” for government officials to suggest that bank bailouts were good deals for taxpayers. Kane writes: “On balance, the bailouts transferred wealth and economic opportunity from ordinary taxpayers to much higher-income stakeholders in TBTF firms" (Dr. Edward J. Kane, economist. From http://www.dailykos.com/story/2014/08/01/1318253/-Senate-Bombshell-Testimony-Citi-BofA-Stock-Worthless-In-2009-Without-Implied-Gov-t-Guarantees?detail=email#).


"The USA permitted "wildcat banking," which was little different in principle from counterfeiting operations... As late as 1929, the US banking system was made up of thousands upon thousands of small, amateurishly managed, largely unsupervised banks.... even during the prosperity of the Coolidge presidency (1923-9), 600 banks a year failed" (Ha-Joon Chang. Kicking Away the Ladder: Developement Strategy in Historical Perspective. London: Anthem Press, 2002. Page 94).


The Peril of Whistleblowing on Wall St. by Nicole Collins Bronzan. ProPublica, June 9, 2014. "...reveals big banks who muster their considerable power in the cause of self-protection—making the risk of finding and reporting wrongdoing so high... The 2010 Dodd-Frank financial reform law was supposed to help prevent another financial meltdown partly by encouraging whisteblowers to come forward, but even that has shown mixed results, Cohan says."


Barney Frank's Biggest Bombshell: His Shocking Anecdote About the Financial Crisis Barack Obama refused to extract foreclosure relief from the nation’s largest banks, as a condition for their receipt of hundreds of billions of dollars in bailout money... The Bush administration, still in charge during TARP’s passage in October 2008, used none of the first tranche on mortgage relief, nor did Treasury Secretary Henry Paulson use any leverage over firms receiving the money to persuade them to lower mortgage balances and prevent foreclosures.

'Rotten Core of Banking' Exposed: Global Outrage Follows HSBC Revelations New details about how HSBC bank helped tax evaders and money-launderers—from political figures to celebrities to arms dealers—conceal billions of dollars in assets have sparked international condemnation, from elected officials as well as public interest groups around the world.

"These bankers are too big to fail and too big to jail, so they just keep engaging in illegal activity," Henry declared. "There’s a widespread pattern of using fines to penalize the top 20 global big banks—$247 billion since 1998, for 655 separate major infractions of all kinds. But they just pass along the costs and continue with business as usual, with client secrecy preserved. It’s like a criminal syndicate."

In the U.S., Sen. Sherrod Brown (D-Ohio) called on the federal government to explain "its actions—or lack thereof—upon learning of these allegations in 2010." The Guardian established that the leaked data was shared with U.S. regulators five years ago.


Colby Glass, MLIS, Ph.D.c., Professor Emeritus