Bernard Lietaer - The Future of Money - Full Book

new money in the form of loans (see sidebar). If you understand this 'money alchemy' you have understood the most arcane secret of our money system.

This is the convoluted mechanism by which the deal struck between governments and the banking system is implemented, and why 'your' money ultimately involves the entire banking system of your country. Money and debt are therefore literally the two sides of the same coin. If we all were to repay all our debts, money would disappear from our world, because the entire process of money creation illustrated in the 'money alchemy' would reverse itself.

Reimbursing all the loans (the left side of the graph in the sidebar) would indeed automatically use up all the deposits (on the right side). Even the central bank's high-powered money would evaporate if the government were able to repay its debts.

‘Old ‘ and ‘New’ banking In his classic book, The Bankers, Martin Mayer recounts the following true story. A man was honoured for 50 years of loyal service to a Virginia bank. At the party celebrating his long service, he was asked what he thought had been 'the most important change that he had seen in banking in this half century of service?' The man paused for a few minutes, then went to the microphone and said 'air conditioning'. In the sequel The Bankers: the New Generation, Mayer notes: 'Twenty years later, this story is prehistoric. It's still funny, but it's incomprehensible. In these twenty years, banking has changed beyond recognition ...Almost nobody who has a job in a bank today works as his predecessors worked as recently as twenty years ago.'

Banking has indeed changed more in the past 20 years than it has in hundreds of years. The 1970 US bank holding company law still defined a bank as an institution which 'agglomerates the transaction balances of a community to lend it at interest to its commercial