The 2014 Bank of England Quarterly Bulletin article is widely regarded as the most radical piece on money creation ever published by a central bank because it explicitly dismantles, in plain language, the core myths that had underpinned orthodox monetary economics for decades. It states unambiguously that commercial banks do not act as intermediaries of pre-existing savings, but instead create new money ex nihilo when they issue loans, with deposits appearing simultaneously on their balance sheets. In doing so, the BoE delivered a lethal blow to the bank-intermediation view, the loanable funds theory of interest rate determination, and the money-multiplier myth. Interest rates are not set by the supply and demand of “loanable funds,” and banks are not constrained by prior deposits or central bank reserves; rather, lending is driven by profitability, risk, and capital regulation, while central banks accommodate reserves endogenously to maintain their short-term policy rate. What makes this intervention truly extraordinary is not that the ideas were new—Post-Keynesians, Circuitists, and endogenous money theorists had argued this for decades—but that a major central bank openly acknowledged them in an official publication aimed at a general audience. In effect, the article publicly repudiated the conceptual foundations still taught in most undergraduate and even graduate textbooks on money and banking. Despite this authoritative correction, the majority of textbooks continue to present money creation through the outdated lenses of financial intermediation, loanable funds, and reserve-driven multipliers, as if the BoE had never spoken. The radicalism of the article lies precisely here: it exposes a deep rift between how the monetary system actually operates and how it is still taught, revealing that much of mainstream monetary education rests on models that the central banks themselves no longer believe. This is a vivid vindication that paradigm shift from “orthodox” reasoning has become an impossible task. And it is therefore up to us, Rebel Economists, guided by our mentor Steve Keen, to do whatever it takes to accomplish this job.

@Stephen Hinton By all means.

Jon, many thanks for sharing your thoughts on funding infrastructure projects via USTC. You first introduced this proposal some time ago, addressed to President Trump, which I found both ingenious and bold. The same holds for the present version, to which I’ve given a lot of thought, taking it a step further by summarizing and highlighting a couple of key nuances, and ending with a statement that reinforces MMT’s view on debt financing. My apologies for annoying you once more. 😊 Quantitative Easing (QE) primarily swaps government securities for reserves, increasing bank liquidity without creating net financial assets, while repayment of central-bank-held debt merely extinguishes both bonds and reserves. QE does not directly finance public investment, and interest on Treasury bonds held by the Fed is remitted back to the Treasury, so the private sector does not capture any benefit. By contrast, a Congressionally chartered Infrastructure Trust can issue a non-interest-bearing digital currency (USTC) to finance public infrastructure, accepted at par by the Treasury for taxes. USTC is created through spending and deleted when returned in taxes, eliminating the need for bond issuance at the consolidated public-sector level and generating an interest-free monetary float, or digital seigniorage, for the public. When Treasury securities are lent or transferred by the central bank to the Infrastructure Trust, the Trust immediately acquires income-producing public assets that back USTC issuance up to the bonds’ face value. As the Treasury services principal and interest, reserve balances accumulate within the Trust and remain intact, allowing additional USTC issuance financed by interest income. For example, if the Trust holds $1 trillion in Treasury bonds at a 5% interest rate, semiannual coupons of $25 billion could be recycled into new USTC issuance, creating a sustainable funding loop for infrastructure investment. Taxes paid in USTC reduce circulating liabilities while leaving reserves untouched, effectively creating new fiscal space. Providing incentives—such as allowing 95 USTC to extinguish $100 of tax obligations—encourages voluntary redemption, preserving backing and enabling continuous issuance. Spending on public infrastructure not only increases productive capacity but also expands economic activity and tax revenues via the fiscal multiplier, further enhancing the Trust’s capacity to fund policy initiatives.

@Jon Underwood Thanks for the draft. Yes, I’ve got the bandwidth—happy to help edit the Keen Institute proposal to HM Treasury and make it as compelling as possible for cross-party support! Let’s position this proposal as a bold yet evidence-based challenge to the austerity mindset that has eroded social cohesion and prioritized speculative gains over broad prosperity.

@Demetrios Gizelis I have not seen your claws come out for awhile my friend! I see something about this topic has gotten under your skin as you invested significant time in your response, and took off the kid gloves with @Chris Rimmer It does look like AI response, edited to reduce hallucinations and improve clarity, and in such situations AI is consistently creating ‘a new Truth’ that no human being has ever thought of or spoken before. And for this, we must be careful, because it takes an advanced mind to pull AI apart to decipher little nuances that led it astray. In this case, your post is filled with a wealth of knowledge, but Chris is truly a ‘creative thinker,’ and if he makes mistakes fine, he is not a snowflake, but the originality of his approach must also be appreciated, which is not a strength of the machine called AI. Instead, it blinds us with facts and other perspectives, but I’d suggest Chris’ work needs to be evaluated separately, on its own terms…with maybe a bit more thoughtfulness and grace from one as eloquent as you. And my response: “I see something about this topic has gotten under your skin as you invested significant time in your response, and took off the kid gloves with”… (MMT). I reverse this and I read it as Jon’s persistent preoccupation with his forensic accounting in trying to disprove MMT’s central tenet: in a sovereign monetary economy, in which the state has a monopoly over money creation, fiat money is first spent into existence by the state and then forensic accounting follows, enforced by existing prohibitive institutional arrangements. “…but Chris is truly a ‘creative thinker… but the originality of his approach must also be appreciated…” I never disputed Chris’s creativity. However, the problem that I’ve detected with him is that he refuses to acknowledge his conceptual errors. His overconfidence as expressed in the moto “skeptical of ALL economic theories” in light of his fundamental unfamiliarity with the historical breadth of economic thought, and his reliance on proto-and-developed Austrian lineage, to me sounds astonishing.

@Jon Underwood So, money just fell from the sky like manna into deposit accounts, and the state just waited for the bond vigilantes to graciously buy its treasuries so it could spend? That’s the ultimate truth. Amen, my brother.

In my opinion, the euro is not unstable because some countries are uncompetitive — differences in productivity and trade are normal in any large economic area. It is unstable because of the way it is built. The eurozone is a monetary union without a fiscal union, meaning countries gave up control over their sovereign money but do not have a central European Treasury to help balance differences. Without this, adjustments happen through austerity, wage cuts, unemployment, and rising debt, rather than through public spending supported by a central authority. This is not a random policy mistake but a fundamental design problem. The eurozone combines a central bank with no state and states with no central bank, relying on rules and markets instead of shared fiscal power. Unless Europe creates a full federal system with a common Treasury, fiscal transfers, joint debt, and a central bank ready to backstop governments, the eurozone will continue to struggle and is likely to face fragmentation or breakup over time.

@Jon Underwood Open economies always face real external competition. But, the issue isn’t real competition; it’s nominal adjustment. With their own currencies, countries adjust nominally to their own productivity paths via exchange rates. Inside the euro, they must adjust to Germany’s productivity path, which is structurally impossible for the periphery unless they resort to internal devaluation (wage cuts, austerity, unemployment). So, sovereignty shifts the burden of adjustment from wages/austerity to the exchange rate.

@Jon Underwood Yes, sort of, but in a more straightforward way without your cryptography 😊