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Letters to our MPs

Page history last edited by Dermot Smyth 7 years, 6 months ago

If you write to your MP, please put a copy here. It will be a useful guide for others who want to write.

Put your letter under the correct heading, latest at the top

If you are not registered as a wiki writer, or are unsure how to do it, just forward the details to our email address and we will add it


Paul Blomfield (Labour, Sheffield Central)


20 May 2015 email response to Paul Blomfield's reply: 

Hi Paul
Thank you for your considered reply to the Sheffield Positive Money Supporters Group. However, we urge you to have another look at the way money is created in the UK economy.
As you know, Positive Money proposes ending private banks’ ability to create 97% of the money in circulation (‘out of thin air’) when they make loans – and replacing it by democratic, sovereign money creation.
In your reply you mentioned the following features of the 2008 banking crash: 

  •  Inadequate regulation
  • Irresponsible lending risks
  • Bad loans
  • Too much debt

Of course, these were all involved. But, in a complex system, causal chains contain many links. The above list is of intermediate causes or effects, rather than root causes. 

If the power to create money were removed from private banks, they not would be in a position to make so many bad, risky loans in the first place. 

They wouldn't need so much (largely ineffective) regulation.  

Lastly, your suggestions for more house building and a state bank for SMEs are most welcome. But they would not be solutions to the problem. On the contrary, they will only become financially feasible in the event of radical change to our monetary system.  

We hope you will continue to take an interest in this debate as it will surely become more prominent in the coming years. 

Thanks again

Dermot Smyth


3 May 2015 reply by Blomfield to PM:

Money creation is an issue I have discussed with constituents in the past and, whilst I think the Positive Money campaign raises some valid points, in particular around education on the subject, I am concerned that some of the proposals made do not address the real issues. For example, what went wrong in the lead up to the 2008 financial crash wasn’t fractional reserve banking (as opposed to full reserve banking, i.e. only lending what you have), which has been a principle of every banking system since the 16th century, but unregulated banking taking irresponsible risk. Even with full reserve banking, banks can still make bad lending decisions and depositors are more exposed. It wasn’t that people borrowed too much, but that banks lent badly, and this could still happen with ‘Positive Money’.


Of course we absolutely must go further in responding to the financial crisis, which highlighted the serious problems with the way the economy works, but I’d suggest things like re-regulating lending, a state-backed investment bank for small business lending and an ambitious house building programme to avoid the problems created by the housing bubble, as better solutions than positive money. I’d be interested to hear your thoughts on these alternatives.

Paul Blomfield



Nick Clegg (LibDem, Hallam)


Letter Response from Stephen Bollom to Nick Clegg 29/9/14


Dear Mr. Clegg,

I am writing in response to your email (23/09/14) regarding the matter of misconceptions about money creation in the UK economy.


Having come to see you in person along with Susan Wood at a constituency surgery two years ago to discuss precisely this topic, I was encouraged to read in your recent communication that you appear to be one of the few members of parliament who understand -not only the money creation process- but also the importance of this knowledge within public and policy making circles. I feel compelled to add here that I took away from our 2012 meeting the distinct impression that your view of the monetary system at that time was essentially that of the 'money multiplier model' which is regarded as outdated in the recent Bank of England quarterly bulletin (2014 Q1). You might remember that at that meeting I left with you a copy of the book, 'Where Does Money Come From?' (NEF 2011) which I think rightly claims to be the premier account of how the UK's modern money system actually functions; sadly I have been disappointed that you hadn't responded (as agreed) until now with your opinions about the issue. Although the BoE document is a welcome official confirmation, I must say that it is tempting to read it as being reactive rather than proactive, considering the educational efforts of groups such as Positive Money and NEF spanning several years.


The inclusion of personal financial education into the school curriculum is to be applauded, however my research so far shows no sign that the correction of misunderstandings around banking and money forms a part of this program. Is there a plan for future inclusion of an accurate description of how banks function and of the money creation process as you describe it in your email? Is there any pressure from Westminster to encourage a swift amending of the many textbooks -currently in use, that misrepresent the money system while forming the basis of students' syllabi in the field of economics?

Also, is there any move to educate policy makers currently in post who are -by and large ignorant of, or misinformed about, how the monetary system functions and how this functioning influences the effects and effectiveness of policy?


I am sure that you are aware of the serious warnings issued by the Bank of International Settlements over the summer months concerning emergent asset price bubbles as signals of impending instability in national and Eurozone economies. Bearing this in mind- together with your stated views that these widely held misunderstandings around money creation can 'hamper attempts at effective reform' and that this issue is of 'significant public interest', I ask, can you assure constituents that pressure will be brought to bear in addressing this matter of education?


Yours sincerely,



Stephen Bollom


Pro Forma Response from Nick Clegg's office 23/9/14


(This reply was received in response to a contact asking what our MPs understand about money creation. The same reply was received by both Steve Bollom and Mike Black - and at least 4 other PM supporters)


Dear Mr xxxxx,

Thank you for contacting me regarding the Positive Money Campaign and for posing your three questions about how money is created. I do accept that there is a problem that not enough people, including policymakers, understand how new money is created.

This is a problem for a number of reasons, not least that it can hamper attempts at effective reform of the banking system. The creation of money is a matter of significant public interest and we need to make sure it does not become an obscure and technocratic debate.

In the modern economy, most money takes the form of bank deposits. How these bank deposits are created is often misunderstood, though the main way is through commercial banks making loans. Whenever a bank makes a loan, it creates a matching deposit in the borrower's bank account at the same time, thereby creating new money.

Physical cash accounts for less than 3% of the total stock of money in the economy. Commercial bank money - credit and coexistent deposits - makes up the remaining 97% of the money supply.

There are several conflicting ways of describing what banks do. The simplest and most common way is that banks take in money from savers, and lend this money out to borrowers. However, this does not reflect the true picture, as banks do not need to wait for a customer to deposit money before they can make a new loan to someone else.

Banks operate under a system called "fractional reserve banking". Simply put this is where banks lend out many more times that amount of cash and reserves they hold. Banks create new money any time they extend credit, buy existing assets or make payments on their own account. Their ability to do this is only very weakly linked to the amount of reserves they hold, and at the time of the financial crisis, for example, banks held just £1.25 in reserves for every £100 issued as credit.

Although commercial banks create money through lending, they cannot do so freely without limit. Banks are limited in how much they can lend if they are to remain profitable in a competitive banking system. Regulations also act as a constraint on their activities and the ultimate limit on money creation is monetary policy, governed by the Bank of England. The Bank of England aims to make sure the amount of money creation is consistent with low and stable inflation and sets base interest rates.

Understanding how finances and our economy work is hugely important, and that's why I'm delighted that the Coalition Government announced in 2013 that personal financial education would be added to the national curriculum for the first time. Ensuring the next generation is properly equipped to enter the workplace is hugely important, and that can't be done without having a good grounding in how finance works.

Yours sincerely

Nick Clegg MP


Sue to Nick Clegg 26/10/12

Sue and Steve arranged to meet Nick Clegg, and left him with some reading material on Positive Money, including a copy of "Where does money come from".

This is a follow up email that Sue sent


Thank you for seeing Steve & me this morning.


Like many people, I had never asked the questions “What is money?” “Where does it come from?” “Who actually creates it?” Ben Dyson - the founder of Positive Money - has asked these deceptively simple, but oh so important, questions. The answers are utterly fascinating, and, we think, offer a key for moving forward, and radically reforming the money system. And by extension, banking. Fertile grounds for the Lib Dems!


As promised, here are a couple of links. Ben Dyson gave a 15 minute talk on Radio 4 on 24th October. The link to ‘listen again’ is below. He concluded by pointing out - optimistically - that, as the laws of money are man-made, they can be changed (unlike the laws of Nature).


The Positive Money website is a fund of information, with various videos, including ‘Why are House Prices so High?’: www.positivemoney.org.uk


Finally, here’s a document from the IMF. No need to read it all (!) – pages 1 (abstract) and 4 (introduction) say it all: http://www.imf.org/external/pubs/ft/wp/2012/wp12202.pdf


We hope you find this area as interesting and important as we do, and will be happy to continue to liaise with you.


A reply was received from Nick Clegg's office, saying that Nick was interested to hear about this "emerging campaign", and hoping to be able to respond with Nick's thoughts in the future, when he has had time to digest some of the information provided to him.


Paul Blomfield (Lab, Sheffield Central)


Reply from Paul to Peter (by email 19/5/14) -

"I will certainly follow any debate with interest but as I have stated previously I believe the case for Positive Money has yet to be proven as I don’t think the key proposals will assist with the economic growth necessary to support investment in jobs and services. On that basis I do not think it would be appropriate for me to back the debate. Thank you for getting in touch and for keeping me updated."


Peter to Paul Blomfield 9/5/14

Three MPs are calling for a parliamentary debate on monetary reform

  • Steve Baker (Con)
  • Caroline Lucas (Green)
  • Michael Meacher (Lab)

This is a letter I wrote to Paul, bringing him up to date with the campaign, and asking him to contact Steve Baker and to participate in the debate

Paul Blomfield letter 5 (wiki).doc


email exchange between Paul Blomfield and Peter 25-27/9/13


1) From Peter to Paul 21/9/13


"I thought you might be interested to know that, at their recent conference, the Green Party passed a motion to adopt monetary reform as official policy. Their policy is now virtually identical to the Positive Money proposals, other than minor changes in terminology. Hopefully other political parties will soon start to follow suit!!" [link to PM blog]


2) Reply from Paul to Peter 25/9/13


"Although there are some attractions to the criticism of fractional reserve banking, there are real issues with the solution. Among the problems with the arguments, the key points to me in relation to the main three proposals are:

  • Under proposals for ‘investment accounts’ (in place of savings accounts) people would lose access to their money for an agreed period. Also, positive money supporters acknowledge that these ‘investment accounts’ would always involve a level of risk. Both factors would disincentivise savings and reduce business lending with a negative impact on growth and job creation.
  • Less importantly, but nevertheless significant, changing current accounts to ‘transaction accounts’ from which the banks can’t lend would involve the introduction of account charges, adding significant costs for people.
  • Finally, I can’t see how the proposal to replace the BoE Monetary Policy Committee with a supposedly independent Monetary Creation Committee, creating money in line with Govt inflation targets is necessarily helpful. For me, monetary policy needs to consider a number of factors including economic growth and employment.


3) reply from Peter to Paul 27/9/13


1 - Yes, people would lose access to 'investment accounts' for an agreed period, but this is no different to what happens now. Of the £2trn currently in bank accounts (the M4 figure), approx half is in instant-access accounts and half in time-deposit accounts (term and notice accounts). The £1trn in time-deposit accounts would form the basis for investment accounts, and the £1trn in demand accounts would be removed from banks' liabilities and be replaced by risk-free custodial accounts.

And yes, the investment accounts would involve some level of risk for the banks, and ultimately for the investors. Most people would recognise that risk-free investing is a myth (the risk is currently shouldered by the tax-payer). There is increasing interest in peer-to-peer lending and Islamic banking which both accept the concept of interest in return for risk. It is in fact a stated objective of monetary reform to "align risk and reward".

2 - In many countries, current accounts already incur up-front charges, and even in the UK there are "hidden" charges. The cost of providing a transactional account has been estimated at £63 per year (www.tusmor.com). This is not a "significant cost" for most people, and if it was an issue then free banking could be provided as a benefit; to provide free banking to all 50 million account holders would cost about £3bn p.a, easily affordable out of the seigniorage which the government would get (somewhere around £50bn by my estimate).

3 - the policy of the proposed Money Creation Committe includes growth and unemployment; it is essentially no different to the current policy. What is different is the mechanism by which they can control the money supply. Interest rates are notoriously ineffective, taking at least a year to take effect, if at all. Controlling the money supply by varying interest rates is like driving with a 10-second delay on the accelerator and brake. Directly controlling the money supply in accordance with Parliament's inflation/growth/employment targets would be much more responsive and accountable.

I hope this goes some way to allaying your concerns


Peter to Paul Blomfield 2/12/10

... How do the banks work? According to polls, most people believe that the money banks loan out to borrowers comes from the money deposited by savers. In fact, the truth is more sinister. Our system of ‘fractional reserve banking’ gives commercial banks a licence to literally create money out of thin air – and then charge interest on the money they created. At the height of the boom, banks created £44 “credit” for each £1 of deposits!


Now, the economic health of the nation – people’s livelihoods and jobs – depends on the availability of money to oil the wheels of commerce, yet we allow commercial banks, driven purely by the interests of their shareholders, to determine how much or how little money is in circulation. Could you invent anything more insane? For example, in 2008, the banks created £266bn of new credit when it was profitable for them to do so, fuelling an asset bubble. The following year, when lending became risky, this fell to £106bn – a massive £160bn fall. This drastic reduction in new money supply was a root cause of the recession, leading to thousands of job losses.


Fractional reserve banking is also the cause of spiralling debt. When a bank lends £100, it expects (say) £110 back the next year. Where does the money come from to pay the interest? Since ALL money is created by the banks, they have to keep on creating more and more to cover the interest payments – in effect, the money they create each year is the following year’s profits! And since all money is created as debt, this means that we must get deeper and deeper in debt year on year. Total debt to the banks now stands at over 2 trillion pounds and is increasing exponentially. There is no escape, it is a mathematical certainty.


We might blame bankers for many things, such as irresponsible lending, and obscene bonuses. However, they cannot be blamed for the system which they have inherited, that can only be changed by political will. I believe that the modern banking system is flawed in its foundations; the faults lie so deep that we are blind to them. No amount of tinkering at the edges can make right a system in which money supply is controlled wholly in the interests of bank shareholders.


It doesn’t have to be like this. A number of economists, including the New Economics Foundation (nef), have called for an end to fractional reserve banking. They recommend implementation of a ‘full-reserve’ banking system, and have submitted a proposal to the Independent Commission on Banking (ICB). In this model, the licence which allows commercial banks to create credit is removed. Banks can only lend out what has been deposited, so they cannot trigger a credit boom or bust. The money supply is controlled solely by the central bank, free from both commercial and political pressures.


Money supply would be much more stable, and it could genuinely bring the end of boom and bust. In addition, the spiral of ever-increasing debt could be broken as, when new money is needed, it could be injected directly into the economy instead of being created as debt. The existing debt burden could be gradually paid off without creating more debt, avoiding another crisis and another round of spending cuts.


I urge you to read the submission to the ICB, which can be downloaded on the positivemoney.org.uk website, and to support the radical banking reform proposed in that document. Needless to say, this proposal will be fought tooth and nail by the banks – it needs equally strong support from our politicians, on behalf of ordinary citizens.


an exchange of letters followed. Paul Blomfield is well aware of the campaign but has not yet "bought into" it.


Meg Munn (Lab, Sheffield Heeley)


Mike to Meg Munn 28/1/13


I am very concerned that the Coalition is not addressing the serious problems caused by the lack of effective regulation of the banks. It has delayed implementation and diluted the recommendations of the Vickers Report... 


[the letter then continues with extracts from the 'template', and from other letters posted further down]


What strikes one as outrageous, is that the Banks proceed to lend Government this same money created out of nothing, at compound interest.  Yet at the same time, when boom turns to bust they get hundreds of millions from the hard pressed taxpayer to preserve their system.  And  it really is impudence is it not, that they then demand that the people who have bailed them out pay back in short time the Government's deficit, which is really quite minute in comparison to the amounts that they are making out of them.


I do hope you agree that this is a totally unacceptable situation, and that Parliament must take away the Banks' powers and return them to government.  I am also sending a locally produced leaflet which describes how our economic plight is caused by a fundamentally flawed monetary system in more detail.



awaiting a reply


Natascha Engel (Lab, NE Derbyshire) 


Richard to Natascha Engel 13/10/12


I am very concerned that the Coalition is not addressing the serious problems caused by the lack of effective regulation of the banks. It has delayed implementation and diluted the recommendations of the Vickers Report.


The banks can lend much more money that they take in deposits. By 2007, they had created up to £100 of new credit for each £1 in reserve (Bank of England, Reserves and M4 Supply, July 2007). This is equivalent to the banks creating money.


They created £260 billion in 2008. In rough terms, less than 20% of this was used to support industry, around 40% for mortgages (resulting over the years in massive house price inflation) and around 40% on "financial services" (including "casino betting" on food futures etc etc)

The Bank of England also creates money (as cash and notes) and this generates "Seniorage" which is worth some £2 billion each year to the Treasury. (For each £1 created by the Bank of England, 99 pence is "profit" for the Treasury).

In my view and that of Positive Money (www.positivemoney.org.uk) it would be better for the Bank of England to control the money creation and feed the Seniorage back to the Treasury. Estimates suggest that this would more than balance the savings from the current Coalition spending cuts. This could be achieved by a gradual increase in the ratio of bank reserves to lending, with the Bank of England making up for shortages in the money supply whilst still avoiding inflation.


Note - Richard and Peter subsequently met Natascha Engel, who was very supportive and agreed that a debate on the subject was needed. She is chair of the Back Bench Committee and gave some useful advice on raising our profile in Parliament.


The Positive Money template

(see also http://www.positivemoney.org.uk/get-involved/educate-your-mp/)


As one of your constituents, I am very concerned that we are being asked to pay the costs of a crisis caused by the banks. I recently discovered that while the government has supposedly ‘run out’ of money, commercial banks effectively have a licence to create money literally out of nothing. They do this by ‘extending credit’ in banking jargon, or typing numbers into a borrower’s account in plain English. The numbers in your account and mine were created not by the Bank of England, but by a high-street bank. I found this hard to believe at first, but the attached quotes [DOWNLOAD & INCLUDE THE QUOTES] from the Bank of England and Martin Wolf, of the government’s Independent Commission on Banking confirm that this is how the process works. Banks are able to create money only because the law that governs the creation of £5 or £10 notes has never been updated to take account of the digital money that now makes up 97% of all the money in the economy.


According to the Bank of England, the banks doubled the amount of money in the economy – through reckless lending – between 2000 and 2007 alone.

No democratic decision has ever been made to entrust banks with the power and privilege to create money, and I feel that – given their performance over the last few years – now is the time when we should take this privilege away from them.


Could I ask you to watch the three minute video available at www.positivemoney.org.uk? Would you also mind confirming that you are now aware that banks have acquired the power to create money?

Yours sincerely,



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