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What you seem to suggesting, at least in part, is financing new enterprises in a way similar to venture capitalists. I have the brains (or idea) and they have the money. We each get a share of the stock.
The Muslim banking system requires that banks share the risk so that the money provided is not a "loan". I don't know if they really share the risk or this is just a subterfuge to get around Islamic prohibitions on charging interest.
I hope you'll continue to provide prescriptions in future comments as well as criticisms of current practices.
Policies not Politics
---- Daily Landscape
I am pointing out - as did Mr Congdon (uniquely, in my experience, in a mainstream paper, never mind the FT) -that money can, and should, be issued interest-free, (but not necessarily, as we see below, "cost -free")
We have been bamboozled by the complexity, and smoke and mirrors of the system, into believing that interest-bearing money is necessary. Clearly, since such money is more expensive than non interest-bearing money, it must, all else being equal, be more inflationary.
There is no need for a Central Bank, and Hong Kong has never had one. In Hong Kong, private Banks issue notes and interest-bearing "Money as Debt" under the supervision of a Monetary Authority.
Putting to one side the "Peer to Peer" solutions I described up-thread (which essentially bypass and dis-intermediate Government altogether), a more conventional mechanism would be for Interest-free Credit to be issued directly by the Treasury, under the supervision of a Monetary Authority.
ie Money would be "Treasury Notes" not Bank Notes.
That is what US Treasury Greenbacks were, and until quite recently (being finally phased out in 1971).
That is pretty much what the Social Credit movement advocated, but they aimed to keep a handle on inflation using technocratic Government price controls.
In post Napoleonic times Guernsey had a very successful direct government issue of money, which lasted a good while until conventional bankers brought the wonders of debt money to Guernsey.
I would advocate the issue by the Treasury of interest-free Treasury Credits directly (ie without bank intermediation, and therefore without banks needing to put Capital at risk at all) to borrowers under the management of Banks as service providers.
Although there would be no interest, such credit would have both system costs and default costs. The users of credits would make a payment into a default fund, part of which would go to Banks as service providers.
Such a system is what I propose, in essence, in my "LLP solution" for Northern Rock, above, and is not a million miles from the situation the Banlk Of England has been forced into.
Re Islamic Banking, the "Capital Partnership" I advocate is in fact practically identical to the Islamic financing technique known as "musharakah" and this is universally agreed to be genuinely Islamically sound.
Some Banks use other techniques (eg "Mudabarah") in ways which some scholars are prepared to approve, but others are not. These Banks pay large amounts for "fatwa's" to the complaisant scholars: the purchase of indulgences is an apt comparison.
However, the mechanism used has a bearing only on the amount of Capital Islamic Banks must commit to backing the finance. The source of the money which they advance is still "deficit-based" and "Islamic" Banks like all the rest, create credit on the basis of an amount of capital set by the BIS.
To sum up:
(a) Credit, in fact, has no cost other than system costs and default costs.
(b) Productive Capital has a "market price" = "cost" based upon the expected likelihood of rewards over time from the Capital assets in which investment is made.
"The future is already here -- it's just not very evenly distributed"
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