Most sovereign states are responsible for the creation of their own money. Or at least, I am of the opinion that they ought to be. The New Zealand Government directly or indirectly is responsible for creating New Zealand Dollars (NZD).

In our present-day money system, most new money is created out of “thin air” by commercial banks. Every time a commercial bank makes a loan, it creates money. The stock of money has been growing in an exponential fashion as shown in the following figure for the case of the NZD.

Obviously the stock of money can only increase if an entity creates it. In the figure I show how the stock of NZD has increased over time. I show what economists refer to as M2 money which includes paper money and coins plus demand deposits and traveller’s cheques plus savings deposits and money market shares. M2 money is a closely watched indicator of money supply and future inflation, and as a target of central bank monetary policy.

Economists have no theory for inflation. In other words, there is no equation that can be written that enables economists to calculate future inflation when certain variables are included. This has been discussed in an academic paper by Dr Jeremy Ruddan economist on the board of governors of the US Federal Reserve System (FED). Dr Rudd has a Ph.D. in Economics from Princeton University and a B.A. in Economics from Harvard University. It is Dr Rudd who stated in his paper on inflation that mainstream economics “is an apologetics for a criminally oppressive, unsustainable and unjust social order”.

The plot of the money stock is a bit like a hockey stick. In mathematical terms the curve can be modelled by the equation for exponential growth:

In this equation, Nrepresents the stock of NZD, N₀ represents the stock of NZD at the start time (in this case 1 March 1977), t number of days from 1 March 1977 and k is a fixed number that represents the rate at which money increases. From this equation it is possible to calculate the time it currently takes for the money supply to double although it is possible to guesstimate from looking at the graph.

This curve shows that the supply of New Zealand dollars doubles approximately every eight years. Where did all this new money come from?

Folk can verify the money creation process by reading books like that by Josh Ryan-Collins and colleagues entitled Where does money come from? or watching numerous documentaries or listening to podcasts on the subject that feature prominent experts. I’m not going to go into the proof of this because there are plenty more qualified people than I to provide enlightenment on the subject.

I can supply on request a long list of references, including publications by the Reserve Bank of New Zealand (RBNZ). I would, however, thoroughly recommend watching the prominent Australian contrarian economist Professor Steve Keen in action on You Tube. He proves his point with force, Aussie swagger, eloquence and mathematical rigour that should satisfy anyone including any competent economist.

The top four banks registered in New Zealand are in foreign ownership; nominally, Australian ownership. I say “nominally” because in reality these banks are multinational corporations that anyone who has surplus money to invest can own shares in. Most of the shares in these “Australian” banks are owned by large institutional investors such as pension funds, hedge funds, private equity funds, national and international corporations and private investors. Only a small proportion of shareholders are probably Mum and Dad investors who can be located anywhere in the world. I think that it is fair to say that generally speaking, only relatively wealthy people own shares. In the United States, less that 10 percent of the population invests directly in shares while in New Zealand the number is less than 20 percent.

Kiwibank is the largest New Zealand-owned bank but it only accounts for a 5 percent share of the New Zealand banking market. No offence to anyone, but Kiwibank is a minnow, but one that in my opinion we should all support more.

The Bank of New Zealand (BNZ) was established in 1861 and it became the government's banker. In 1992, just after the start of the neoliberal era, the BNZ was purchased by the National Australia Bank (NAB) and became a subsidiary of that Australian bank. Local governance was, however, retained by a New Zealand board of directors. The RBNZ and the Financial Markets Authority (FMA) are the main regulators of banking in New Zealand.

Since private banks create new money in the act of making a loan one has to ask, to whom is this new money lent?" The answer has to be individuals and entities that have assets. Certainly not to poor people. As we all know, all loans need to be secured by something.

Isn’t it funny how banks get to create money from “thin air” but you can’t use “thin air” to secure a loan. The bank wants something tangible, something of real value.

If private banks create most of the stock of new money, I also have to ask what incentive would there be to create money to develop public infrastructure? The answer is that they don’t generally have any incentive. I would be happy to be proven wrong.

In theory there is no reason why they can’t lend to develop public infrastructure say through Public-Private Partnerships (PPPs) but this hasn’t happened much in New Zealand, and it is not how most of our infrastructure has been developed. There have been eight such projects since 2011. Despite the fact that PPPs also don’t seem to have a great track record either here or across the Tasman, our Government seems to be fond of them, issuing a refreshed PPP framework in November 2024.

It is probably safe to say that in general, private banks are not greatly interested in lending for the commons, the stuff that we all use, because that might not make a profit, and they wouldn’t be able to easily foreclose on all of us. What would they do? Take our hospitals, roads, schools, electricity system, water supply etc? Besides, lending on housing is much easier, less risky, and much more profitable. Surprise, surprise, we have an infrastructure crisis, and hugely unaffordable housing.

Private banks can only operate in New Zealand if they are issued a license by the RBNZ which is owned by, you guessed it from the title, all of us. So, the bank we all own issues licenses to private banks which only a very tiny proportion of more well-heeled New Zealanders might own a piece of and who create money by lending only to those that have wealth (= assets + cash).

One of our Government’s expressions that I keep hearing these days is “we have no money”. I heard this from the mouth of our new Minister of Health when he was Minister of Transport. If that is the case, how do you explain the figure I have shown? I especially hear this expression a lot when it comes to financing public infrastructure like roads, bridges, water, energy, education, public housing, universities and of course health infrastructure. That’s strange indeed.

I have to ask why it was that back in the day when our population was a fraction of today’s our Government was able to build infrastructure. Here I would implicate neoliberal ideology and neoclassical (mainstream) economic theory.

I also must ask, which country has become the best at developing infrastructure in recent times? The answer, of course, is the People’s Republic of China (PRC), which owns the majority of the largest banks in that country, including the "Big Four" state-owned banks. Exactly the opposite of us. China created thousands of small, local banks which lend locally; meanwhile New Zealand banks are closing branches around the country.

The PRC has now overtaken the United States in many areas of science and technology, including most recently, in the area of Artificial Intelligence where they showed us all a thing or two recently.

When our top private banks are owned by everyone but us, how can we possibly claim to be a sovereign country?

Finally, I would like to give a shout out to an outfit called Positive Money NZ (https://positivemoney.org.nz/) an offshoot of Positive Money UK. I invited these folk to speak to the Mayoral Forum (a forum of BOP Mayors and CEs) a few months ago to explain how water infrastructure could be developed by using money created by the RBNZ. It seemed that most of the audience were not overly convinced, or if they were, they didn’t show it.

I have invited Positive Money NZ to speak to the council and our governance manager is arranging a date.