Sovereign Money by Christian Felber

On Friday, the 30th of July, we had the honor to welcome Christian Felber for the second time at our summer school. After his lecture about the Economy for the Common Good on Wednesday, he has taken on the topic of money this time.

Felber criticizes the prevailing paradigm and the dominating reality of deregulated and globally free financial markets for its unlimited inequality. Why is it that such a system prevails? His major critique is that it is not democratically legitimated. In contrast, it is highly influenced by lobbying from financial actors. For example, Wall Street financial firms paid $5.1 billion for lobbying between 1998 and 2008.

Consequently, Felber promotes the paradigm of money as a public good. This means that the rules are made democratically, that money should be the means (not the end) and serve the common good.

Such a democratic monetary system would be an important pillar of sovereign democracy, in which the people as the sovereign have the last say on all policies and should be able to decide about the constitution. One innovation which he proposes is democratic assemblies of citizens to freely decide on fundamental issues regarding the economy. As an exercise for a new constitutional monetary system, he suggests that local monetary conventions should be implemented to vote on fundamental questions. Those should decide amongst others on the creation of money, which he focuses on in this lecture.

He states that in such a democratic design, the current financial and monetary system would never find a majority. Based on his experience with trial monetary conventions he predicts that the majority would most likely favor a sovereign money reform. This includes that all money is created by the central bank (cash as well as electronic money). Commercial banks can consequently only grant loans based on savings previously collected from their clients, but not create money through loans anymore as they can in the current system. To depict his message in one word; he wants that the profit from making money, the so-called seigniorage, becomes a sovereignage, meaning that this profit is for the people.

In a sovereign monetary system, central banks have a monopoly on issuing money. It enters debt-free into circulation. As advantages, Felber lists for example less speculation, safe current accounts which leads to fewer bank runs and consequently fewer bail-outs, a simplification and better control of the money supply and a huge reduction of public debt. Unfortunately, there was no time to go into detail about the impact on the real economy.

Although Felber addresses lots of improvements to the democratic process, money, finance, and society, the complete package is not convincing. First, the approach to allowing a society to decide on its constitution, finance and monetary system is likable but seems unrealistic. On the one hand, it is already hard for the well-educated and motivated students of AEMS to understand the various involved money concepts, let alone the consequences of their introduction. Thus, it will be very challenging for the average citizen to make an informed decision. This, of course, leaves much space for manipulation, which already starts in providing the choices for a referendum. Though clearly stated with good intentions, even the fundamental questions for local monetary conventions, as proposed by Felber, are tainted by his own ideology.

The motivation of making money a pure tool for the public good sounds great. Also, it seems to remove most of the big problems of our current monetary system. Unfortunately, it is hard to evaluate the full impact of sovereign money. How much research has there already been on positive money? His lecture leaves these questions unanswered. It would be interesting to observe positive money in a local field test.

Felber closed with an overview of other common good-oriented measures for the financial and monetary system like linking the granting of loans to sustainability criteria, negative interest rates or a global reserve currency. This was an interesting outlook for further discussions of the interaction of these measures also with the idea of sovereign money.

Finally, the talk’s narrative was too chaotic. There are too many themes presented, which are also not built up convincingly. It would be more helpful if the introduction of the new paradigm was immediately followed by a slide that motivates the most important do’s and don'ts that follow from the idea of money as a common good. It would also be beneficial to focus more on sovereign money.

Based on the lecture "Sovereign Money" by Christian Felber during AEMS 2022.
Written by: Marie Neubert and Peter Hachenberger