71% of MPs don't know how money is created

You'll pick up the details from this email I just sent to my MP. You might want to do the same (feel free to use this email a starting point).

I have been aware for a little while now of the findings of a poll by Dods Monitoring showing, shockingly, that only a minority of MPs could correctly explain who creates money in the UK and how.

I am concerned that nearly three quarters of MPs believe that only the government is allowed to create money, when in fact that only applied to notes and coins and, given that the huge preponderance of money is now electronic, it is banks that create the majority of money in the UK since the government in fact plays no real role in that part of the money supply (the rot set in with the retiring of the Bretton Woods agreement in the 1970's). This has fairly direct implications for the house price bubble and the risk of another debt-fuelled crisis.

Just in case you weren't aware: the government creates coins and notes, but these make up just 3% of money in the economy. The other 97% of money exists as bank depositswhich are electronic numbers in bank accounts. The aforementioned poll showed that just over 71% of MPs believed that only the government could create this electronic money.

In actual fact, banks create money through some simple accounting, when they make loans. This means that when people repay loans,  money disappears from the economy. It is worrying to me, as someone with some economics training,  that only 12% of MPs in the poll correctly gave this answer. I had assumed that MPs would pick up these kind of basics in the course of their political careers.

Just so you can get a sense that this is not just me passing on some fringe economic viewpoint, consider the Bank of England explanation from their March 2014 Quarterly Bulletin:

"[The] majority of money in the modern economy is created by commercial banks making loans. ... When a bank makes a loan, for example to someone taking out a mortgage to buy a house, it does not typically do so by giving them thousands of pounds worth of banknotes. Instead, it credits their bank account with a bank deposit of the size of the mortgage. At that moment, new money is created. … Just as taking out a new loan creates money, the repayment of bank loans destroys money." ( http://bit.ly/1rrwbnL )

Please could you confirm that you are aware that:
1. Around 97% of money in the UK consists of electronic bank deposits in people’s bank accounts
2. That banks create these deposits when they make loans
3. That when people repay loans, the money is destroyed and disappears from the economy.

If it turns out that you are one of those who didn't know this about the money supply, can I recommend that you read Ann Pettifor's book 'Just Money' which I suspect will resonate well also with your own political concerns.

Yours etc ...


Full poll results available