WHAT IS PUBLIC BANKING?
Public banking is banking operated in the public interest. Public Reserve Banks are organized as Financial Non-Deposit Investment Cooperatives. Public banks in Canada are part of the sustainable cooperative green movement. A Community Reserve Bank is owned locally by the co-op members. It operates within a defined geographic area called a Currency Union District and is focused upon investing in young entrepreneurs, innovation, technology, sustainable green fresh food farms and community infrastructure.
A Community Reserve Bank, as an investment cooperative, does not compete directly with the local credit institutions, but rather will seek to enhance their operations by fulfilling the role of an underwriter to a local Credit Union or Commercial Bank. Instead, the CRB invests to assist small businesses to obtain loans and grants from the financial infrastructure that is already in place.
Public banking is distinguished from private banking in that its mandate begins with the public’s interest. Privately-owned banks, by contrast, have shareholders who generally seek short-term profits as their highest priority. Public banks are characterized as long term investors able to reduce taxes within their jurisdictions, because their profits are returned to the general fund and they never leave the Currency District, therefore, always available to help build up the local tax base.
Local citizens have available an infrastructure to help them retain capital to invest locally. Local decision-makers are able to support opportunities to grow local employment and business development. The CRB helps to halt the drain of the capital way from local needs. The costs of public projects undertaken by local governmental bodies are also greatly reduced because public banks do not need to charge interest but are able to employ royalties. Eliminating interest has been shown to reduce the cost of such projects, on average, by 50%.
TEN KEY FACTS OF PUBLIC BANKING
Public Reserve Banks:
- Are owned by the people, co-op members, who live within the local Currency Union District;
- Are integrated into a national banking network with access to Bank of Canada reserve currency,
- Are required to benefit the public by serving local community needs;
- Can save townships, municipal and local governments millions or even billions of dollars, by cutting out middlemen and private shareholders, eliminating fees, and financing projects at lower interest rates;
- Reinvest Bank profits into the community, providing a new source of income for municipalities and a source of funding for projects such as green infrastructure, renewable energy and sustainable fresh food;
- Are run, not by amateur volunteers, but by qualified managers and bankers serving a public mission;
- Provide accountability and transparency to the local public for investment bank decisions, avoiding the risks of Bay Street’s speculative real estate gambling;
- Create new jobs and spur economic growth by supporting local small businesses, innovation and land banking;
- Partner with and support rather than compete with local credit and deposit banks and credit unions;
- It can lend during times of stress and crisis, helping to sustain a healthy local economy
WHY FINANCIAL COOPERATIVES?
Rural Canada is dying. Rural communities, towns and villages are losing population, services are disappearing and there are diminishing business and employment opportunities. Young people must move away to start their adult lives. At the same time, our present financial infrastructure is either over specialized, focusing on agriculture or some other solitary industry. Big Banks and Big Credit Unions are overly efficient at extracting capital and savings away from rural community decision-makers to benefit other remote regions of the world and singularly inefficient at introducing capital back into local rural small business and infrastructure needs. Rural communities are experiencing near extraction of 100 % of incidental capital (savings) through numerous leakages such as grocery shopping to buy food from afar. When, once capital is spent outside the community or savings deposited in big Banks, it is gone forever as a local capital source, a phenomenon known as Decapitalization.
Decapitalization of Rural Canada is the cause of depopulation and loss of local services. This centralized policy-driven cause is decimating rural culture and its way of life. This is not a healthy way to live. This is not a cost-effective way to do business. A Community Reserve Bank, a Financial Investment Cooperative, provides a locally owned infrastructure to stop the drain of capital, stop the withering away of commerce, stop the dispirited culture developing further but instead forms a pathway to build up local capital reserves, to support local innovation, to encourage local small business people, and to grow local employment opportunities for young families who wish to build their lives in Rural Canada.
COMMUNITY RESERVE BANKS
A CRB encourages a rural community’s cash to stay at home to benefit ourselves! Rural communities, when invested with a Community Reserve Bank, would be able to live long and prosper. Commercial Banks and Credit Union business would be enhanced, community fees and interest costs drop, and individual savings and investments are magnified through local public bank profits being reinvested into our own communities.
Public Reserve banks can help us create the communities we want. Local community reserve investment cooperatives would improve our lives, provide sustainable green food for our families, support parks, good roads, safe bridges, clean energy, and housing we can afford. We want to reverse the scourge of centralization and loss of democracy in Rural Canada. We want to increase local decision-making capacity. By accessing more democracy, there will be greater engagement in the community. The outcomes are lower interest rates for local small business loans, increasing the local tax base, adding to the local control of our tax dollars, thus making it easier to invest in our local communities, and increase ethical and transparent financial institutions managing our public funds. Public banks can be the financial engine that makes this happen for our rural communities. Community Reserve Banks will save, grow and provide purpose once more for Rural Communities in Canada.
WHAT IS A MERCHANT CO-OP BANK
The new type of Co-op Bank which PBC Canada is advocating to be established in farm communities, towns, and villages are a local financial investment cooperative owned and financed by local community members. This new institution is characterized by a particular hinterland modelled upon the very successful Sparkassen Banking Network in Germany. The new Co-op Bank would be restricted to operate and function within a defined area called a Currency Union District. Rural people living within a Currency Union District would establish a financial investment cooperative. This new community investment co-op bank is not a credit union or Caisse Populaires. It would not accept deposits or issue consumer credit loans. In fact, the new financial cooperative would not attempt to replicate or replace the present credit service infrastructure or compete for consumer business directly with the local Credit Union or any commercial bank operating within the community. The new co-op bank is best understood to be a “community non-deposit investment financial cooperative”. The new co-op merchant bank may be established easily under either provincial or federal cooperative legislation.
COMMUNITY RESERVE LAND-BANK (CRLB)
The CRLB (Community Reserve Land-Bank) is organized and operated similarly to other cooperatives such as a grocery or green vegetable produce market. The CRLB mission and vision is to revitalize Rural Canada by addressing the ills which are causing the decline. Known as the Rural Canada Crisis, the observed symptoms are young families moving away, loss of rural services and a dearth of opportunities for entrepreneurs and for meaningful employment. The CRLB functions as a community Capital Partner to local small businesses. It has the capability to invest in the local small business community’s new capital resources on both short and long term basis. The Community Reserve Land-Bank would be able to develop a small business loan portfolio but the prime function is to participate in liquidity interventions as a small business underwriter and as a silent investor. When required, a CRLB could help capital resources flow back into its Currency Union District. An important role of a CRLB is to facilitate better financing of local small businesses, either to help find the adequate lines of credit or new sources of equity and to act as a banking advocate for young entrepreneurs with credit institutions. The Community Reserve Land-Bank provides an infrastructure for members of a community to assemble capital reserves through direct investment into the financial cooperative and by working to reduce the leakage or the draining away of capital from the community. The CRLB would support new small green farmers and other ways and means to retain more investment capital resources within the local currency district. A common theme is to implement sustainable local food, meat and grocery capabilities. Any capital that is retained, instead of being fritted away, can then be available for investment with local businesses and individuals living within the currency union district.
HOW TO START A COMMUNITY RESERVE BANK
Any five community members can form a Community Reserve Land-Bank. The establishment of a non-deposit financial cooperative is easily accomplished as all the provinces and Territories provide well-written guides for accomplishing this. There is nothing wrong with starting out small. Practical assistance and help from your province and from the Public Bank Coalition Canada is readily available. Statutes, By-laws and Board composition and the necessary procedures are all well laid out’ and the cost is minimal. Initial costs are covered by a membership fee, set locally.
THE CANADIAN RESERVE INVESTMENT BANKING NETWORK
Community Reserve Land-Bank cooperatives are locally owned and independent investment financial institutions which for the main part are operated by local volunteers. These new institutions, in turn, are important communal owners of a regional management corporation where they are joined by Agencies of the Province, provincial agricultural and farm associations and as well as by other private enterprises and businesses. These network regional entities bring together outside sources of funding into the rural land-bank network yet do not usurp local imitative of autonomy from the volunteers and staff of a local Community Reserve Land-Bank. The regional entity provides centralized services, data management, business counselling and education, lending skill development, collecting, research and due diligence management skills. In addition, the regional offices are able to draw on banking development expertise and sources of funding from the national merchant bank which integrates the land-bank network into the Bank of Canada reserve system through a correspondent OSFI licensed Rural Infrastructure Bank.
A Rural Infrastructure Merchant Bank
The new nationwide land-bank network which is designed to revitalize Rural Canada by re-invigorating rural communities, whether small or large, by providing an infrastructure to gather together community capital and to draw new investment capital back toward the towns and villages of Canada. The Community Reserve Land-Bank is a catalyst for sustainable growth and development of a re-invigorated rural population. In this way, the vibrant rural culture and community way of life in Rural Canada can survive and prosper. The new Rural Canada that will emerge will continue to encompass those agricultural industries presently doing well but will include a populace with renewed vibrancy and hope to tackle new initiatives, create new industries, start a new enterprise, grow small business and provide new employment opportunities in rural communities.
The development of the Canadian Sparkassen modelled rural banking network requires the formation of two new businesses at the national level. Together, Canbrae Capital Partners and a niche rural infrastructure Chartered Bank would be formed at the centre of the Network to accomplish our mission and vision for the Land-Bank network. Canbrae would provide an integrated investment portfolio that would allow the local Reserve Land-Bank to carry on the investment underwriting process at the local community level. Canbrae CP also ensures all funds raised in a community stays to benefit the local people of that community. The new Chartered Bank provides access to Bank of Canada Reserves and to the wider Canadian banking system. Together, these two national network entities would initially constitute a ten to twenty million dollar investment by Public Bank Coalition Canada, its members and partners.
WHAT IS MONEY?
(ADAPTED FROM THE WRITINGS OF ELLEN BROWN, PBI)
“Money exists not by nature but by law.” Aristotle 340 BC (www.monetary.org)
- Money is simply a construct that has been granted some symbolic concepts which make trade more convenient. Three important and widely accepted concepts are that money represents a store of value, money is anything that people will accept in exchange for goods or services, in the belief that they may, in turn, exchange it, now or later, for other goods or services and money is a form of currency found out and about or abroad in the economy.
Money has taken many forms, including shells, sheep, horses, beaver pelts, diamonds, gold nuggets, coins, paper notes, and now accounting entries on a computer. Money is an abstract social invention used to facilitate transactions beyond the barter process.
- How is money different from wealth?
Money should not be confused with wealth. Wealth is a natural value that arises from natural resources, that comes about from as a fruit of people’s labour and from the innate innovation of the human mind. In general, wealth is the productive combination of creativity, natural resources and labour. Money itself is only a claim to wealth, not wealth itself.
- What is Capital?
Capital is savings or an accumulation of wealth, Money as a store of value can resent capital the store of wealth.
- What is legal tender?
Legal tender is any form of money which the Sovereign Government declares good for the payment of taxes and both public and private debts.
- Who has the right to create money in Canada?
The Sovereign Government of Canada representing the People of Canada as written by Parliament, the sole right and duty to create Legal Tender or currency, money.
- The Right of Parliament in Canada:
Parliament can create a currency that is considered money by Spending into the economy to provision itself and to actualize the Government of Canada Policy. Parliament has extended to the Chartered Banks in Canada the right to create money as debt when purchasing a personal note, extending a loan.
“The actual process of money creation takes place primarily in banks.” —Federal Reserve Bank of Chicago, “Modern Money Mechanics”
How is money created? In our current system, banks create money, by a bookkeeping entry, in the form of bank deposits (chequebook money) when they extend loans. In the process of extending a loan, both a loan (an asset) and a deposit liability are created—that is, no net asset is created. The important thing to remember is that when banks lend money, they don’t necessarily take it from anyone else to lend—they “create” it.
- To whom has the Parliament delegated this money creating right?
Parliament retains the sole right to create money in the right of the People of Canada under Fiscal Policy of the Government and extended that right to its wholly-owned agency, the Bank of Canada through the exercise of Monetary Policy. In addition, Parliament has farmed out this power to create money to the licensed chartered commercial banking system Only these three can increase the money supply in the economy, i.e., currency and demand deposits (“chequebook money”) which are instantly available to make purchases and pay bills. None of the other financial institutions has this power to manufacturing money.
- The Bank of Canada:
The Central Bank of Canada is owned by the Minister of Finance in the Right of the People of Canada.
The BoC acts independently of the Government to administer its own Monetary Policy.
The Bank of Canada’s monetary policy aims to balance the liquidity of the Canada Bond market and the money supply in the economy available for ease of commerce.
WHAT IS CURRENCY?
(ADAPTED FROM THE WRITINGS OF ELLEN BROWN, PBI)
- A currency is a form of money, usually issued by the public authorities in a particular jurisdiction. It performs three functions – it is a unit of account, a store of value and a medium of exchange. The government may issue more than one type of currency, for a particular purpose and a broad currency, It is able to do so because banks, firms and households accept it in settlement of debts and is demanded by Government as taxes.
- Approximately 95% of the money is created as Debt
In our current system, banks create money, by a bookkeeping entry, in the form of bank deposits (chequebook money) by purchasing a Promissory Note from a private writer called the Borrower., This form of money creation is termed a Bank Loans. In the process of extending a loan, both a loan (an asset) and a deposit liability are created on a Bank’s Balance Sheet —that is, no net asset is created. The important thing to remember is that when banks ‘lend money’, they do not lend their own capital and they don’t necessarily take capital owned by anyone else to lend—they simply “create” it.
- Our current fiat monetary system is a two-tiered system of Reserve Currency, “base money” and Broad Currency, “bank money”.
This may be visualized as being analogous to the goldsmiths’ gold and gold notes.
In our two-tiered system, the central bank (Bank of Canada), creates the monetary base, by computer keystroke on its books, whenever it buys assets—generally, government securities, Canada Bonds or Treasurys. Commercial banks expand the money supply through the process of lending—i.e., extending bank credit, or bank money.
Banks are given a “special” privilege—their bank money can be exchanged for cash (base money) at par on demand. While banks create bank money in the process of creating loans, banks must have sufficient reserves of base money to meet settlement requirements with other banks to maintain liquidity (ease of transactions) in the banking system. This could include Government Bank Notes to meet customer demands of cash and check to clear.
- The money supply, M2
M2, as reported by the Bank of Canada, consists of currency in circulation, demand deposits, time deposits, and retail money funds. Except for cash, which is created by the Central Bank, most of M2 is “bank money” created by commercial banks when they issue loans. The monetary base, MB, which is not included in M2, consists of vault cash and deposits held at the Bank of Canada.