The process by which banks create money is so simple that the mind is repelled.

                                                                                            - JOHN KENNETH GALBRAITH

Conventional money  =>  Ever-deeper debt

Conventional money is letting people down. Those of us who accept it as payment for our work and produce are being shortchanged.

Dollars come into circulation as a community approaches private corporations for loans – money created by banks in the form of debt. Because banks demand interest as loans are repaid, money leaves the community faster than it comes in. Only about 2% of the money supply in use in New Zealand is created interest-free.

The problem with this is that money is always in short supply. When banks provide loans they create the principal only. Borrowers must find extra money to repay the interest by increasing their production, competing with others facing the same problem or further borrowing. A community using bank money senses some liquidity but can't build a reservoir of wealth: it is pouring its earnings into a leaky bucket.

Money keeps flowing for as long as people are willing and able to take on more debt. But a community exchanging its labour and products for bank-created money becomes a little poorer with each transaction. The endless need to increase production creates an unsustainable demand for natural resources. The competition for an inadequate supply of money means that bankruptcy is inevitable for some of the losers. Further borrowing compounds community problems, consigning borrowers to long-term and often inescapable debt. Ultimately the community has nothing it can call its own.

Little wonder that regionally, nationally and globally we are now faced with escalating environmental damage, economic strain and social dislocation.

Living Economies promotes user-friendly forms of money - currencies created not by entities seeking to profit by its creation but by communities themselves without any interest attached. Local currencies circulate without leaking away, so they free people from the trap of ever-increasing debt. Without the interest component of the cost of living, local resources can be conserved and communities can begin to prosper.

The salt of the banks

Banks encourage the view that credit is a scarce commodity for which borrowers must pay heavily.

In 1930, the British monopoly on the salt trade in India dictated that the sale or production of salt by anyone but the British government was a criminal offence punishable by law. Salt was readily accessible to coastal area dwellers, but instead of being allowed to collect and use it themselves for free, they were forced to purchase it from the colonial government.

Mahatma Gandhi and his disciples walked 240 miles to make their own salt by boiling seawater at the coast. Salt has a special meaning in Indian culture: to "eat somebody's salt" is to be servile to that person. Gandhi showed that eating the British salt was no longer acceptable or necessary.

New Zealanders, offered expensive money since banks first set themselves up in this country, are coming to appreciate that credit is as vast as the ocean around us and that no one is living very far from the coast. Communities are deciding that it is no longer acceptable or necessary to be eating the salt of the banks.

Cost savings

Cost savings become more urgent in a recession.

By far the heaviest cost New Zealanders bear is the interest charged on business and home loans. All New Zealanders - even those who owe nothing - are subject to this charge, since all goods and services are priced to cover the interest owed by debtors. Tax levels, for example, are set to cover the interest owed on government debt.

Interest is the elephant in the bill.


I can personally avoid bank loans and reduce the impact of their cost on me if I save in advance for what I want to buy. Even when saving hard, however, there are times when I would like credit. Actually, I would like credit at minimal cost: I would like to be able to use and repay money or the goods and services it represents without getting further into debt.

You - and others - might like the same. Some of us could come to a mutually beneficial agreement:

  • you may use my surplus and I yours;
  • we won’t charge one another interest on what we use.

Households and businesses across New Zealand are experiencing such agreements as dependable, worthwhile, empowering and enduring.

The choice

The apparent convenience of bank credit has made it seem possible for families and businesses to live and work independently of their neighbours. As communities lose their ability to network and collaborate, however, they surrender more and more of their autonomy to their creditors. An interest-based economy makes households, towns and whole countries highly dependent on outside supplies of not only consumer goods but also the money to buy those goods and the jobs to earn that money - and leaves them particularly vulnerable to breakdowns in any supply line.

Indebtedness is expanding faster by the year: debt servicing costs are growing much faster than incomes. Communities are becoming poorer while working ever harder. Net family income is worth less today than when the average family could live on a single income and own a standard home.

The extra spending power loan principals appear to represent is never enough to satisfy the banks’ demands for repayment. To accept a bank loan is to perpetuate a scramble with other debtors for money in short supply. I can’t meet my debt obligation unless I or those I trade with borrow even more. Either way, the community I live in is sinking ever deeper under the weight of what it owes.

With annual interest costs approaching $10,000 per person, no community can afford to wait for leaders or authorities to inspire, order or permit it to change the way it organises its trading. Any community willing to talk and work together is already well placed to retire its counterproductive and disempowering bank credit approach to buying and selling for profitable and equitable models.

Credit can be created very economically by any local trading network for participants’ mutual benefit - or bought at prohibitive expense from private corporations. A community can work together to create for itself an unfailing supply of purchasing power while keeping its net debt zero, or it can keep feeding a bank credit habit and risk economic stagnation and increasing distress.

No one can measure to the bottom of the debt - the loss of ownership - the second option entails.