And what purpose does it serve?

What is a money system? What is the money behind the money system?

For centuries the mechanics of the money system have remained hidden

from the prying eyes of the populace.

Yet its impact, both on a national and international level, is perhaps unsurpassed,

for it is the monetary system that provides the foundations

for international dominance and national control.

Today, as these very foundations are being shaken by crises,

the need for open and honest dialogue on the future of the monetary system

has never been greater.

This economic crisis is like a cancer.

If you just wait and wait, thinking this is going to go away,

just like a cancer it's going to grow,

and it's going to be too late. What I would say to everybody is, get prepared.

This is not a time right now for wishful thinking

that the government is going to sort things out.

The governments don't rule the world: Goldman Sachs rules the world.

"We're on the verge of a perfect storm".

In opposition lie corrupt and entrenched interests that lurk in the corridors of power,

for whom there are no reasons to relinquish privileges that they feel are justly deserved.

Has he got a reform plan for the NHS? [SHOUT: No!] Has he got a police reform plan? [No!]

Has he got a plan to cut the deficit? [No!]

Order! Misorder! Order!

Do you trust the government?

Try to calm down and behave like an adult, and if you can't, if it's beyond you,

leave the chamber. Get out. We'll manage without you!

"This is the banking fraternities feeding station.

There's no coincidence that boom and bust became

a real cyclical issue around about the 1700's,

when William Paterson founded the Bank of England.

This is intolerable behaviour as far as the public is concerned. No, it's not funny!

Only in your mind is it funny. It's not funny at all, it's disgraceful.

One Solution, Revolution!

The system is inherently unstable as a result of

the international power it provides to the dominant parties,

for at the heart of it lies the idea of; how can I get something for nothing?

Statistical analysis has found that every time an empire begins to near its own demise,

you'll find that its currency will be debased.

There is no guide to how this whole system operates.

To give you an example, a researcher at the BBC working on a Robert Peston documentary

went to the Bank of England and said, "Can you give me a guide to how money is created?"

And they just said, "No".

This documentary will investigate and explain this ever changing system,

and the impact it has both on a national and international level.

97% Owned

How is money created?

Notes and coins

In 2010 the total UK money supply stood at 2.15 trillion pounds.

2.6 % of this total was physical cash, 53.5 billion.

The rest, 2.1 trillion, or 97.4% of the total money supply was commercial bank money.

The 3% of money is created through the central bank

and that money essentially, if you created a £10 note you could sell that to a bank

to put into their ATM and the bank would have to repay that £10 or buy it for £10.

There would be no interest charged on that money,

but that money is then essentially transferred to the Treasury

and it's a form of fundraising for the government. It's called seigniorage.

Seigniorage: Profit made by a government by issuing currency.

The difference between the face value of notes and coins, and their production costs.

When the Bank Of England creates a £10 note,

it costs it about 3 or 4 pence to actually print that note

and it sells it to a high street banks at face value, so for £10 and the profit,

the difference between printing the note and actually selling it for £10 goes directly to the treasury.

So, in effect all the profit that we get on creating physical money, bank notes, goes to the Treasury

and it reduces how much taxes we have to pay. Over the last 10 years, that's raised about £18 billion.

In 1948 notes and coins constituted 17% of the total money supply.

This was one contributing factor in the government's ability to finance post-war reconstruction.

This included the establishment of the NHS.

In only 60 years notes and coins have shrunk to less than 3%.

Prior to 1844 bank notes were created by private banks

and the government did not profit from their creation.

Pre-industrialisation there was multiple forms of money co-existing,

and so the rise of government-sponsored fiat money is a relatively recent phenomenon.

In the 1840s there was no law to stop banks from creating their own bank notes.

So they used to issue paper notes as kind of a representative of what you had in the bank account.

Instead of you taking your heavy metal coins out of the bank

and then going and paying somebody with them

you could get your paper which said how much money you had in the bank

and you could give that to somebody

and they could use that to go and get the heavy metal coins from the banks.

Now over time these paper notes became as good as money.

People would use paper notes instead of going and getting real money from the bank

and obviously as soon as the banks realised that what theywere creating

had become the dominant type of money in the economy,

they realised that by creating more of it they could generate profits.

They can just print up some new notes lend it and get the interest on top of them.

And they did that up until the 1840s.

In the1840s they pushed it just a little bit too far

and that caused inflation, destabilising the economy. So in 1844,

the Conservative Government of Robert Peel actually passed a law

that took the power to create money away from the commercial banks

and brought it back to the state.

So since then the Bank of England

has been the only organisation authorised to create paper notes.

Since then everything has gone digital and what we now use as money

is the digital numbers that commercial banks can create out of nothing.

The problem was that they did not include in that legislation the deposits,

the demand deposits, held in banks by individuals or electronic forms of money

which essentially is what those demand deposits are.

Today most of the money in circulation is electronic money,

it's bank demand deposits that sit in our accounts.

So in a way the legislation's got to catch up with the developments in

electronic money and the way that banks actually operate.

Money held in bank accounts are called demand deposits.

This is an accounting term the banks use when they create credit.

Banks follow the same process when they create loans.

All money held in bank accounts is an accounting entry.

Commercial bank money

The reality is now that most money is not paper and it's not metal coins it's digital.

It's just numbers in a computer system.

It's your Visa debit card. It's your electronic ATM card.

It's this - plastic. It's numbers in a computer system,

you move money from one computer system to another.

It's all a big database and this digital money

is what we are now using to make payments with.

It's what we actually use to run the economy.

I think a lot of people in the UK probably think that the government or the central bank

is in control of most money in circulation and issues new money into circulation,

but that's not the case.

It's private banks that create the vast majority of new money in circulation

and also decide how it's allocated.

The official terminology for this accounting entry is commercial bank money.

When banks issue loans to the public, they create new commercial bank money.

When a customer repays a loan, commercial bank money is destroyed.

The banks keep the interest as profit.

There're a lot of misconceptions about the way banks work.

There was a poll done by the Cobden Centre

where they asked people how they thought banks actually operated.

Around 30% of the public think that when you put your money into the bank

it just stays there and it's safe,

and you can understand why because every child has a piggy bank

where you keep putting money in

and then when it's a rainy day you smash it and you take that money out and you spend it.

So a lot of people keep this idea of banking

it's somewhere safe to keep your money so that it's there for whenever you need it.

Another, the other 60% of people assume that when you put your money in,

that money is then being moved across to somebody who wants to borrow it.

So you have a pensioner who keeps saving money her entire life

and then her life savings have been lent

to some young people who want to buy a house.

But actually banks don't work like that.

"It's basically an accounting trick. Banks create money. They don't lend it.

When a bank gives out what is called a loan,

it basically pretends that you have deposited the money. It has to invent the liability.

this is how the money supply is created." (Professor Richard Werner)

At the moment in the UK money creation and control is largely in the hands of private banks.

About 97 to 98% of money that's created is created as bank "debt money" you could call it,

when banks issue money into circulation as loans essentially.

This is a very poorly understood fact.

It's not a conspiracy theory, it's not a crackpot theory,

it's the way the Bank of England describes the process.

When banks make loans they create new money.

"by far the largest role in creating money is played by the banking sector.

When banks make loans they create additional deposits for those that have borrowed the money."

(Paul Tucker - Deputy Governor of the Bank of England)

A few economists will realise the way the money system works

but if you don't realise the way that money works and you think that

everybody saving is going to work well for the economy,

what really happens once you understand the way the money system works,

is that if everybody starts saving the amount of money in the economy shrinks and we have a recession.

Most economists don't have this full picture. They don't understand all the elements of the system.

They rely on assumptions, on received knowledge without actually going into the details

and money is the centre of the economy. If you don't understand where it comes from,

who creates it and when it gets created then how can you understand the entire economy?

When the vast majority of money that we use now is not cash but electronic money

then whoever's creating the electronic money is getting the proceeds of creating that money

and obviously creating electronic money is much more profitable than creating cash

because you don't have any production cost at all.

So while we've got £18 billion over the course of the decade in profit from creating cash,

the banks have actually created £1.2 trillion.

Between 1998 and 2007 the UK money supply tripled.

£1.2 trillion was created by banks, whilst £18 billion was created by the Treasury.

A lot of people think when I say this or when you say this

or when Positive Money say this, that we are all a bunch of nutters.

But on the 9th of March in 2009, the governor of the Federal Reserve, Ben Bernanke,

gave the first ever broadcast interview the Governor of the Central Bank

of the United States of America had ever given.

The day before that he had bailed out AIG,

to the tune of about US$160 billion.

So the journalist says to him: "Now Mr. Bernanke where did you get $160 billion to bail out AIG?"

Is that tax money that the Fed is spending?

It's not tax money. The banks have accounts with the Fed,

much the same way that you have an account in a commercial bank.

So to lend to a bank we simply use the computer

to mark up the size of the account they have with the Fed.

So it's much more akin, although not exactly the same,

to printing money than it is to borrowing.

Banks create new money whenever they extend credit, buy existing assets,

or make payments on their own account, which mostly involves expanding their assets.

When a bank buys securities, such as a Corporate or Government Bond

it adds the bond to its assets and increases the company's bank deposits

by the corresponding amount.

New commercial bank money enters circulation

when people spend the credit that has been granted to them by banks.

I found that talking on the door step from August 2009 around to the general election,

knocking on the doors, is that when we tried to explain how the money system works,

there's an almost in-built refusal of people to accept that such a bizarre situation could actually exist.

"Ah no, it can't possibly. What do you mean? ...banks don't create money out of thin air.

That's ridiculous. They can't do that. They lend out their depositors' money."

Most people have an idea of how money is. They are used to their own way of handling money