Capitalism is lending money with interest and asking for the principle back. The money is created by private banks who keep a capital adequacy against which to lend. The voluntary Basel III norm is 8.35%. So, to lend Rupees 100 the bank needs Rupees 8.35 as equity in the bank. The Reserve Bank of India’s guidelines stipulate 10.35%. The terms and conditions on which to lend are entirely up to the bank.
Under capitalism the aim is for banks to lend for their own profit, so they want to get the highest interest the borrower is willing to pay and get the capital repaid in the shortest possible time with no repayment holiday. Thus, supposing you lend me Rs 89.65 at 15% interest to be repaid in a year you will have Rs 103.0975 at the end of the year, having invested just Rs 10.35 in your bank as equity.
It was only in May this year that the Bundesbank in Germany acknowledged officially that this is indeed how banking works, and that all the textbooks that teach economists that banks lend the money of their depositors, is a lie. The Bank of England made the same confession last year.
In the example above, I who borrowed the Rs 98.65 must use the tools I buy and the labour I hire with my loan to collect Rs 103.0975 from the market to pay back to you within the year. Now obviously if I live in a region where there are thousands of banks, say Switzerland, and the banks have been creating money for themselves and for the public for the last hundred years, and all the people have money, it is easy for me to find the market for my goods and services that will pay me the money to pay back the bank. I make a living and the bank grows massively.
China cottoned on to this idea in the last few decades and in just a short period from 1992 when the United Nations Framework Convention on Climate Change was signed, till today, propelled its four state owned banks to the status of four largest banks in the world. In the process, its carbon dioxide emissions from burning fossil fuels went up from 1 tonne per person per year to 10 tonnes today.
China now says it will stay level at 10 tonnes per person and USD 15,000 per annum income per person from 2030 onwards. This is half the USA’s per capita emission level and around a half the average annual income. (Switzerland is lucky in this respect because if it abundance nuclear energy it can still manage at present levels of electricity consumption with hydro and solar, which is what its energy plan is.)
If everyone in a world of say 10 billion people was at the Chinese level we would have 100 Gigatonnes of emissions per year globally and a 150 trillion USD world economy. Instead of a global economy that generates around USD 1,000 per Gigatonne of carbon dioxide, the Chinese posit a slightly more efficient use of fossil fuels and expect to achieve USD 1500 per tonne. But we will still all be dead, because every 2.12 Gigatonnes of carbon into the atmosphere raises the concentrations of carbon dioxide in the atmosphere by 1 part per million. And thus, as one tonne of carbon is 3.66 tonnes of carbon dioxide, 7.76 Gigatonnes of carbon dioxide raise the concentrations by one part per million (ppm), and so an annual emission of 100 Gigatonnes raises the concentrations by just under 13 parts per million. We are at around 50 Gigatonnes of carbon dioxide per year globally today and at around 412 ppm. At present rates, we will therefore double the concentrations in the atmosphere in 63 years, in the China scenario in 32 years.
A trajectory of doubling the concentrations of carbon dioxide in the atmosphere within this century is a sure death knell for all humans, as the temperatures will rise by 10 degrees Celsius long before we have doubled the concentrations. Trees, algae, all sorts of other plants and animals will thrive as they did in similar climatic conditions in a previous eon. But humans cannot survive in the present scenario where there are practically no trees at all to cool down the earth.
The conclusion for humans, therefore, should be that in addition to creating only renewable sources of energy in the economy, which is what the present Central Government of India is doing well, we must also control the banks that lend money for their own profit to activities such as oil coal and gas that cause the emission of carbon dioxide. The latter part of the necessary actions neither the Indian Central Government nor any other Government in the world are taking at all. No Government wants to abolish capitalism.
But waiting for banks themselves to decide of their own accord to create money only for the care economy and ecology, in which money is used for work to regenerate culture society and ecology, and especially for tree planting and forestry to soak up the excess carbon dioxide emissions in the atmosphere, may mean waiting forever and a day.
Instead, to make banks create money for eco and not ego, the Reserve Bank of India and all other central banks in the world should only give licenses to banks who lend according to our criteria, which we can all discuss.
And in fact, better still, the Union government should take hold of its sovereign power of legal tender and issue all money in the country directly into the bank accounts of Gram Panchayats and Ward Sabhas for creating the work for all in the care economy, agriculture, soil and forest regeneration and sustainable urban living. Thanks to electricity this is all possible digitally.
Banks can then stop creating money for their own private greed as under capitalism, and if bankers want a role they can help democratic third tier governments manage the Rupee in the local economy to avoid inflation locally, reach money to all the citizens, and generally help the GPs and Ward Sabhas fulfill all their social and ecological purposes. New jobs will be created not only for the poor, but also for the rich, who will be retrained and newly motivated to serve the people and planet instead of just the banks.
The public should discuss whether it is not the case that fractional banking and capitalism has had its day: whether the time has not come for a new form of money for new purposes.
Anandi Sharan was born in Switzerland, lives in Bangalore, and worked in Araria District in 2016. She mainly writes about India and how we need a better money policy to help agricultural labourers and women especially to adapt to man-made climate change.