Home » News/Views » The future of money

The future of money

The coronavirus pandemic has seen the use of cash falling to ever lower levels. What next? Photo Adam Gilchrist/shutterstock.com.

In a world where much commerce is conducted digitally and cash use is falling, the central banks are stuck in the past, supplying notes and coins while credit is controlled by the private retail banks. But that could soon change…

Since the coronavirus lockdown the amount of cash used to purchase goods and services has dropped. And there’s been a corresponding increase in electronic transactions. Both trends were already happening, quite rapidly, but have accelerated dramatically with this year’s events.

In effect, the buying of goods and services is becoming easier to administer. Within this change the potential capabilities of the Bank of England – which is after all a socially owned institution – to plan expenditure and investment should increase. Crucially for workers, the changes being contemplated could make control over the financial system far easier to attain and sap the current overwhelming power of finance capital.

For some time now the Bank of England – along with other central banks – has been looking at how the methods of payment for goods and services have changed. This has prompted the Bank to start a series of talks on the “future of money”. As part of these talks the Bank has been consulting nationally and internationally on ways of introducing a digital pound both for commercial and retail purposes. The offering would be known as a Central Bank Digital Currency (CBDC).

In October, the Bank was part of a grouping of the world’s top state banks (including the US Federal Reserve) that issued a major report on CBDC. It makes for dense reading, but the message is clear: during the past few years CBDC has moved from the world of economic theory to active development. It is on its way. 

The Bank has tacitly accepted that CBDC will be far easier to introduce now that Britain is out of the EU and its financial control mechanisms. Others have seen this too. “England could realise such an undertaking relatively soon… Following Brexit, the country does not have to deal with European Union bureaucracy, nor is it a part of the Eurozone, giving it a certain amount of flexibility in its monetary policy and development,” noted Cointelegraph in July. 

Credit is king

Currently companies and people looking for credit receive additional finance when the commercial banks (those in the high street, such as HSBC and Barclays) issue agreed loans. This loan activity is tantamount to creating money. 

Here’s an example. There is no existing money held in a credit card account before the user begins to spend. Instead of using money already in circulation the card user generates new credit, which is how their extra purchasing power is acquired. This means the card user – whether a company or an individual – is able to pay for products many times in excess of the actual amount of money they could access hitherto.  

In effect, commercial banks by facilitating credit loans actually increase the amount of circulating currency well in excess of the amount of money put into circulation by the Bank of England. 

So it is the commercial banks – not the Bank of England – that determine  the amount of currency in circulation by creating credits as a means of payment, limited only indirectly by interest rates and by the dangers of making unwise loans. Credit at present is therefore a deregulated system of money creation.

In contrast CBDC would potentially enable the Bank of England to determine the amount of circulating currency and credit, taking that role over from the commercial sector. In short, we would have one big bank using technology to facilitate real-time settlements and clear deposits not just between commercial entities but also directly with individuals. Who then would need commercial banks as they are currently set up?

The ancient and still current activity of banks clearing cheques and creating unregulated credits would end. At the same time as part of an overall planning process the role of commercial banks could be changed.

Compare this approach to what led to the 2008 banking collapse. It was estimated that British commercial banks had created credit five times greater than Britain’s GDP, which at the time stood at around £1,600 billion [£1.6 trillion]. The result was that the amount of currency in circulation bore no resemblance to the annual productive value in the British economy – hence the eventual collapse.

 “Many workers and their representatives shy away from developing an understanding of banking and finance…”

The Bank of England is still trying to  conceal this failure. That’s evident in its current consultation paper. It seeks ways of supporting the commercial banks through “open competition”. But later in the same consultation the Bank concedes that under CBDC workers and companies will want their digital bank accounts moved to the Bank of England and away from the insecure commercial banking sector – hardly surprising given the financial shambles that the commercial banks have created. 

Of course, credit does not in itself constitute a danger to the currency – but only so long as an increase in credit is accompanied by a commensurate increase in production. 

Imagine a Britain where each bundle of short-term circulating credit is tied to a known quantity of newly produced British goods available for circulation. Where credit is granted when it makes possible a transfer of goods from one hand to another within the production and consumption process. 

In that way the circulation of currency and the circulation of goods remain in equilibrium. That is – or should be – a basic principle of currency policy, however it is managed.

These days many workers and their representatives shy away from developing an understanding of banking and finance. They need to grasp the nettle. The people of Britain will never be able to take control of the country without taking democratic control of our national finances.


One of the fundamental opportunities – and challenges – from becoming free of EU hindrance is to fund productive work in the regions where people live. (Or are we still going to continue with the regional dog-eat-dog outlook fostered by Brussels?)

One approach to turn things around could be the drawing up of an annual credit plan. Each manufacturing and commercial sector would compile its anticipated credit requirements for the forthcoming year. As each year unfolds the plan for each sector would be further refined to allow for unexpected day-to-day production occurrences or emergencies – including pandemics.

Another key feature as part of a coordinated approach  would be to ensure that credit was available between manufacturer and retailer so that the manufacturer was always able to embark on further production before the retailer has sold the first batch of manufactured products. Overall, this arrangement would take care of shorter-term working capital requirements within the national economy.

At the same time, British commercial banks could be given a new role as specialist investment banks with detailed knowledge of a particular sector. For example, agriculture and horticulture for one bank, chemicals and pharmaceuticals for another and so on.

The task for each bank, according to the plan, would be to administer the longer-term grants and subsidies (fixed capital for investment in plant and machinery) to be allotted to each sector every year. This long-term fixed capital investment could be sourced from the annual increase in value created in the economy during the previous year.

A further innovation would be to anticipate the future increase in the value of production projected over say the next four years. The projected value could then be immediately released as credit for fixed capital investment. This would further help to accelerate production while mitigating the risk of inflation. It would also avoid the dead hand of a long-term plan projected well into the future that would only serve to paralyse immediate action.

Is this all too much to ask? Workers and their organisations have not always been so blind to the need to transform the financial system. The National Executive of the Labour Party said this in 1944: “…finance must be the servant and the intelligent servant of the community and productive industry, not their stupid master.” 

We’ve yet to achieve that. And in 2020 such thinking deserves to be the main trend in financing the country. After all, it’s what Take Control demands.