There is an ongoing court case against the Bank of Canada (BOC) that has been bringing much needed attention to Canada’s monetary policies.
William Krehm and Ann Emmett, co-founders of a small pressure group called the Committee on Monetary and Economic Reform (COMER), filed a lawsuit in December of 2011 to reinstate the power of the BOC to issue money to the government interest free and to force banks to keep 100 per cent reserves against the money they lend out.
COMER, along with some Austrian economists remain skeptical of an economic recovery after the 2008 financial crash and think that markets are still volatile, largely because of central banking and the way money is created.
The BOC was nationalized in 1938 by Prime Minister Mackenzie King, to whom the issue of money creation was of great importance, saying, “Once a nation parts with the control of its currency and credit, it matters not who makes the nation’s laws,” and that before this issue is addressed, “all talk of sovereignty of parliament and of democracy is idle and futile.”
In 1974, Prime Minister Pierre Elliot Trudeau reversed King’s decision, waiving what COMER calls Canada’s constitutional right to borrow money from the BOC interest free. Instead, Canada began and continues to borrow money from private banks with compound interest attached, creating a system of perpetual debt, says COMER.
“We create money as debt and private banks cannot create anything but debt,” says Ann Emmett. “They create the money to pay the interest on the debt, so there’s always a shortage of money and money is the life blood of the economy,” she says.
On January 26 2015, a Crown appeal was heard at the federal court in Toronto, where a decision was made to uphold a ruling by the Honourable Justice Russell to overturn an order striking COMER’s original claim, granting them the right to pursue declaratory relief and sue the BOC for violating the Charter of Rights.
The BOC could not comment on the details of the case, but did say in a public statement, “We are studying the recent decision of the federal court of appeal carefully and considering our options.”
Their option is to take it to the Supreme Court of Canada, says Rocco Galati, the constitutional lawyer representing COMER. Galati says he’s not sure whether or not the government will seek an appeal to the Supreme Court, but that they have 60 days to do so.
Bill Still, author and documentary filmmaker thinks that COMER has a good chance of winning their case and shares in their desire to reform Canada’s monetary policies.
“Over 90 per cent of all money in every nation on earth at this point is created as an interest bearing debt by banks,” Still says, adding, “What we need is to have the sovereign nation issue the money itself and spend it into existence for the benefit of all people equally.”
Austrian economists, however, are particularly critical of this case, calling COMER and Still ‘Greenbackers,’ a reference to Abraham Lincoln who printed green bank notes to fund the Northern Union during the Civil War. The concern of Austrian economists is that they don’t want any central bank, public or private, to have the power of fiat money creation, saying it’s inflationary.
Chris Horlacher, chartered accountant and Vice Chairman of Canada’s Ludwig Von Mises Institute shares COMER’s concern with Canada’s monetary policies, but vehemently disagrees with their approach.
“To the extent that I’m not a fan of central banking, I can agree with them, but what they see the bank for and what they want it to do is in complete opposition to what a free society otherwise would have,” Horlacher says. “Their plan is basically to take control of the bank, print a bunch of money and pay off the national debt, which would be catastrophic in terms of inflation.”
Currently, banks are allowed to operate under a system of fractional reserve lending, which essentially allows for them to loan out other peoples’ money and through a multiplier effect, more than their reserve requirements. COMER wants to increase reserve requirements to 100 per cent to prevent fractional reserve lending, which Horlacher admits “is a risky behaviour for a bank to do… but if they increase the reserve requirement,” he says, “then all of Canada’s banks will immediately be insolvent because they don’t have those reserves.”
But Emmet will not be swayed on her committee’s cause. Money creation should be with the people of Canada, she says. “We believe the democratic system with all its flaws is best able to do that because it is a sharing of power.”
Still agrees, saying, “We need to maximize democratic participation and maximize the number of people who make this decision,” adding, “I think direct democracy would be an excellent answer.”
Horlacher doubts that would work very well and says he doesn’t have much faith in democracy as a way of governing because “it descends into essentially a popularity contest.”
“This is sort of their naiveté,” Horlacher says of COMER and Still. “They think that they can concentrate even more power into a central authority and not have it corrupted.”
Typically, many Austrian economists praise the gold standard as an alternative to fiat money, but Horlacher says, “I’m for whatever standard the people want, not what the government imposes.”
The only question then is who the government is, if not ‘we the people.’
