Transforming the Canadian Monetary System

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James Clayton
Transforming the Canadian Monetary System

The monetary system is an instrument of control. It concentrates wealth, drives unsustainable economic growth, and keeps us in a collective state of perpetual debt.

Money in the present system is essentially credit, which is generated by making digital accounting entries. Financial institutions create money by allocating some of our collective credit—but state-sanctioned currency is systemically scarce because it is created as interest-bearing debt.

As Thomas Greco says, “The fact is that present day banking is mainly a credit clearing process in which additions and subtractions are made to bank customers’ account balances. However, banks perpetuate the myth that money is a ‘thing’ to be lent. If a client’s balance is allowed to be negative, the bank considers that to be a ‘loan’ and will charge ‘interest’ on it. Has the bank loaned anything? Not really. What they have done is to allocate some of our collective credit to the ‘borrower.’ For this they claim the right to charge interest.”

The Bank of Canada creates money for the Government of Canada by purchasing its securities. The Bank then collects millions of dollars in interest, although it does remit the surplus to the Receiver General for Canada; this is essentially an internal transaction—but it makes no sense for the government to obtain some of our collective credit from the central bank and then make us collectively pay interest for it, even if that interest is returned to the public coffers.

It’s even worse when the chartered banks create money for the federal government by buying its newly issued bonds and treasury bills, which allows government to spend more money than it collects in taxes. Taxpayers pay billions of dollars in interest to the banks every year to “borrow” some of our collective credit.

The central bank and chartered banks also tend to put additional money into circulation even when additional goods and services aren’t brought to the market, which inflates prices, reduces the domestic purchasing power of the currency, and erodes the value of our savings.

The Bank of Canada strives to keep inflation at approximately 2% by raising and lowering interest rates to manipulate the supply of money circulating in the economy in an attempt to affect the demand for goods and services by influencing our decisions to borrow and spend.

The improper issuance of money is further problematic when credit is hard to obtain for worthwhile and productive measures, but our collective credit is frequently allocated for unproductive or destructive purposes.

So perhaps it’s time to transform the entire monetary system.

Here’s one suggestion: Maybe we could take the Bank of Canada, Payments Canada and the existing financial institutions in Canada (including banks, trust and loan companies, and credit unions) and roll everything into a national credit clearing system. New legislation could be written to define the business and powers of this public utility—a national exchange and trading system that could be called The NEXT System.

One of the first steps that could be taken would be to eliminate cash, since paper notes and metallic coins are merely tangible tokens of credit—and we are probably already moving toward a digital currency. There would no longer be a need to design, issue or distribute bank notes and supply those notes for circulation in Canada. Bank note research, production and processing cost more than $53 million in 2018, which includes design and development, raw materials and shipping. This is an unnecessary expense and use of resources that can be avoided.

The NEXT System could be mandated to promote our economic and financial welfare. A national credit clearing system could be operated on a not-for-profit basis, but it could charge a nominal amount for its services (perhaps as transaction fees) to cover operating expenses.

The business of the NEXT System would be to manage and oversee the national credit clearing system, which would enable the efficient exchange of our goods and services. The Canadian dollar could be the standard unit of account, but it should be a defined measure of value to facilitate the exchange of value. As part of the transition to this new system, existing accounts could be converted to NEXT System accounts.

The NEXT System would provide accounts and keep an ongoing record of transactions, transfers, and fluctuating account balances—which would increase and decrease, sometimes being positive and sometimes being negative. The total of all account credits in the system must always be equal to the total of all account debits.

An account would be debited when the account holder obtains goods or services; an account would be credited when the account holder provides merchandise, products, services, labour, etc. Credits could be used to obtain an equivalent value of goods and services.

Accounts would even be allowed to have negative balances with established debit limits without being charged interest. Accounts with positive balances would not be paid interest.

Surplus credits (savings) could be made available for longer-term loans and investments, with mutually acceptable terms, fees and rates. Equity financing would also be an option, with shared risks and rewards.

The NEXT System could also be responsible for managing the allocation of our collective credit. A sufficient amount of interest-free credit could be made available for productive purposes to allow people to temporarily obtain more than they have provided—if they are willing and able to deliver an equal value of their own goods and services within a specified period of time.

Taxes could be paid from accounts that have positive balances and surplus credits; these credits could be transferred to the accounts of those in need of assistance, who could then use the credits to obtain necessary goods and services.

Governments, Crown corporations, public agencies, etc. would also have accounts with debit limits. If any level of government wants to spend more than has been collected in taxes, fees and other revenue sources then it could apply for a loan from surplus credit balances in other accounts.

IF we established a national credit clearing system (that is publicly-owned and not-for-profit) then we could shrink our overall debt burden, eliminate the artificial growth imperative, get rid of inflation and deflation, decrease government deficit spending and public debt, balance government budgets, reduce taxes, have more resources for public services, develop a sustainable economy, remove unnecessary restrictions on credit, cut the cost of doing business, provide more opportunities for people to participate in the production of goods and provision of services, and perhaps have more time for leisure activities.

We could take control of our collective credit and allocate sufficient interest-free credit to each other to facilitate the exchange of our goods and services for our mutual benefit.


James Clayton


I went a little cross-eyed but over all sounds great. I am not sold on a cashless society. Using cash is one of the few ways in which we still can have privacy. I can't say that I use it as such. There is just something really creepy about any entity knowing absolutely everything I buy down to Q-tips. Points cards do that and they are starting to link up, merge, and they use that data. What you are talking about is one entity that would know everything from the medications I take to the hours I keep, my entire budget.