Ann Pettifor is right: nothing in that lengthy communique suggests the G20 is prepared to engage with the underlying causes of the financial crisis, nor the chronic instability and injustice that characterise the current economic system. Chief among these is the deeply flawed mechanism by which money is created.
Mainstream economists like Joseph Stiglitz are calling for a new financial architecture, but none acknowledge that the monetary system, and in particular the way money is created – as debt by commercial banks – dictates the way that architecture functions. Cif contributor Chris Colvin recently described the idea of monetary reform as a "wacky fix" and an "extravagant idea that involves removing the ability of private banks to create money and forcing them to adopt 100% reserve banking". Yet the respected alternative economist Herman Daly wrote recently: "I would certainly advocate 100% reserve requirements for banks (approached gradually). All banks should be financial intermediaries that lend depositors' money, not engines for creating money out of nothing and lending it at interest."
Daly's argument for movement towards a just and sustainable steady-state economy offers a comprehensive solution to the current crisis. Colvin, by contrast, follows a long tradition of economists for whom the parameters of the discipline are set by academic orthodoxy.
Colvin's principal complaint – that unless banks are able to create money through traditional means there would be insufficient cash in circulation – misses the point completely. Cash comprises just 3% of the money supply. The rest exists only as entries in banks' electronic ledgers. If banks can create electronic money at will through the process of fractional reserve banking, why shouldn't a democratically accountable central authority do the same. In this paper for the New Economics Foundation, James Robertson and Joseph Huber argue that central banks should determine the quantity of new non-cash money. Under their scheme, the central bank would credit new money to the government as public revenue which would then be spent into circulation.
http://www.guardian.co.uk/commentisfree/2009/apr/03/g20-economics-banks