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New Currency Theory (NCT)


Thanks for the examples.  I asked the question regarding liabilities to determine if some of the disconnects are due to terminology and semantics versus real differences in point of view.

Coins are a special case, unlike gold, they are the actual physical manifestations of US money, legal tender, kept in vaults.  Gold bars are not legal tender.  So my question is, when the Treasury creates coins, which are given value by fiat, what is the counterbalancing liability you see on the Treasury's (not the Fed's) balance sheet?  A liability involves an obligation and I just can't see what that would be in the case of coins.



In current monetary system,  financial instrument: Treasury Currency is used to describe coin/paper currency assets and liabilities for each sector.  Please see  Line 6 in attachment about sector Treasury Currency balance.

Federal Government(Treasury department)  has $25.3B in liabilities
Domestic financial sectors(Fed and banks) has $49.8B in assets

Instrument discrepancy: - $24.5B


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"Would you clarify and specify your objections?"

My purpose is to point out NCT is chartalism in Huber's own words. In chartalism(close to barter system), there is no mechanism for describing financial assets and liabilities.

Current monetary system is more flexible and expandable credit-based system by using more than 30 financial instruments including Treasury Currency, Checkable Deposits and Currency, etc.  to describe various classes of  financial assets and liabilities in each sector.





the coins are a fiction. They don’t matter to the real economy. The money that matters in a modern monetary system is deposits. Deposits necessarily require a liability issuer. Creating coins and then creating deposits just means that you created an unnecessary step by creating the coins. What is the purpose when the real asset that people will use is the deposit? It reminds me of the gold standard and the money multiplier myth.


Rereading Huber's chapter on chartalism, I don't believe your characterization of it being "close to barter system" is accurate.  Chartalism explicity refers to the state rather than bank control of the issuance of money.  Whether it is state-money or bank-money, its use is identical.  So to associate state-money with barter doesn't make sense to me.

Along those lines, I also don't see any restrictions on "financial instruments" backed by state-money as opposed to bank-money.  The existance of "Checkable deposits and currency" are unrelated to the creator and issuer of the money they represent.


Coins are insignificant in terms of the functioning of the real economy - but why do call them a "fiction".  They are on the government books. Yes - in our current money system virtually all money is in the form of bank liabilities to the depositor - I get that.  The gold standard was real once, no longer - and very destructive.  The money multiplier is not really in effect in that there is no real defined ratio between deposit money creation and reserves - but it is very far from 1 to 1.

So I think what you are saying is that virtually all money now is created as a liability of the bank, which I agree.  But my question is, is this set in stone in your view, is this the only way money can be created?


It’s all just bookkeeping. You’re getting too hung up on the accounting terms. I think NCT makes a big deal about “debt free money” for no reason. The financial system is just an accounting system. It’s a way for us to keep a record of who has what and who owes what. But all money is credit in the end. That means that two parties agree to enter a contract of some sort in which an instrument is issued and used to hold people accountable. In the case of government money and the type of banking system you’re talking about the government would be liable for issuing deposits denominated in USD and ensuring that those deposits can be withdrawn for cash and moved around the system on demand as their deposit customers wish.

Personally, I think there’s some merit to the NCT concept that the government can create the money and distribute it into existence as it wishes, but NCT doesn’t have a strong understanding of the accounting that supports their framework and I think that’s what Cullen was trying to get at earlier in the thread.


"Rereading Huber's chapter on chartalism, I don't believe your characterization of it being "close to barter system" is accurate
Chartalism explicity refers to the state rather than bank control of the issuance of money.  Whether it is state-money or bank-money, its use is identical.  So to associate state-money with barter doesn't make sense to me"

You need to read Huber's paper I referred to in my last response. He used word "chartalism" for NCT  and  compared currency school view with bank school view. State-money is outside money and bank-money is inside money. We cannot combine chartalism with credit system since they have different philosophies.

In current credit system, financial instrument: Treasury Currency(Line 6 in my last attachment) is used for describing state money,  and financial instrument: Checkable Deposits and Currency(Line 9) for describing bank money.

NCT paper addresses state issued currency, which is not a financial instrument with assets/liabilities needed in credit-based monetary system.

Do not confuse financial instruments with coin/paper currency.



Yes it's all just bookeeping, I agree.  I asked about liabilities because, even if its true that money represents a liability in some formal sense, its real important to identify the nature of that liability.  When NCT says "debt-free" it is more symbolic.  As you point out, all money now is created at the discretion of private commercial banks  - the counterbalancing asset on the bank's balance sheet is the loan, the "debt" and the principle is the liability to the depositor/borrower.  Since the government can't create money, it also relies upon a "debt" in order to access money to spend, via Treasury bonds. Under NCT that type of debt is not involved.  Goverenment creates the money it needs to spend out of thin air and we, decide how that money is spent into the economy.

This is supposed to be an NCT thread, but I suspect Cullen either hasn't read Huber's work thoroughly or has misinterpreted things and tried to force what Huber is saying into a balance sheet concept. (Huber explicitly shows how NCT works using standard accounting concepts.  )

In the end, its who has the power to decide how much money is created and where it is initially spent.  Some people fear and mistrust government and believe that power should be in the hands of the private sector as it is now.  I'm not one of them.


Yes, as I understand his work, you are correct - he is comparing the banking theory of money to the classical currency theory of money.  Under the banking theory, money supposedly rises and falls directly in response to the needs of the economy.  As he and many others have shown, this is false in practice.  Minsky, in particular was very much aware of the fact the human element leads to gross economic instability under the current banking model of money creation.  Bank-money creation, in practice, is very much disconnected with immediate needs of the economy as a whole, and wildly inaccurate in terms of longer term instruments.

I disagree that there can not be credit and financial arrangements under state-created money.  For instance, I, as an investor can buy shares in a mortgage-backed security fund using my own assets, state-created money.  That security is real, is real credit and is no different than the same arragment under the current system.  Certainly some of the bank-created financial instruments would dissappear, but its not true that financial instruments would cease to exist under state-created money system.