sabato 24 settembre 2016

Italy: the Court of Bolzano on the issuance of currency by commercial banks

Press release
Italy: the Court of Bolzano on the issuance of currency by commercial banks
by lawyer Marco Della Luna, September 26, 2016


The issuance of currency by commercial banks was admitted recently by the People's Bank of South Tyrol (Banca Popolare dell’Alto Adige) in real estate enforcement proceedings 216/2014.

The judge in that case held that this practice is effective and legitimate, by writing, in the order 7/6/16:

"As, however, a breach of Article 127 (ex Article 105) of the European Union's founding treaty, we do not understand why the creation of money through the banking system may violate that provision, which has nothing to that effect, as it is absolutely irrelevant the reference to article 10 banking Act, which does not prohibit such a system, since in any case the Euro is a coin that is not representative, it is not required a value for each printed ticket as the era of the gold standard ... ".

The bank had declared: "The Maastricht Treaty does not reserve the ECB money creation, but literally the issue of (euro denominated) banknotes and minting of coins. The Italian Civil Code does not recognize banknotes and coins at the only legal tender (if it was that, according to anti-money laundering legislation, it would have prohibited any deal providing for the payment of a price equal to or more than € 3,000; similar limits are also in place in most countries of European Union). 


Banca Popolare dell’Alto Adige does just what the art. 10 TUB provides, namely the collection of savings (anyone can open at any time a savings account or open a bank account) and the provision of credit (like the claimant know, Banca Popolare actually grants loans and credit facilities).

The "money creation" by the commercial banks, the existence of "book money", the phenomenon of "fractional reserve" are completely legitimate features of our economic and monetary system and an expression of freedom of contract. If a bank makes a loan to a customer, we have a simple phenomenon of expansion of the balance sheet ( "Bilanzverlängerung"). "


The problem, however, rest in the accounting of the very same process of money creation by the banks: Cash Flow Statements don't account for money creation today.

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