New financial deal proposed for Christchurch renewal

There is a much better way to pay for Christchurch’s renewal and for national development too, according to the independent policy development organisation, Sustento Institute.

A spokesman for the Christchurch-based policy institute, Raf Manji, said an injection of new money into the financial system would be a win-win for the government and the population.

“While the government discusses borrowing yet more debt and bringing in a new tax to pay the costs of rebuilding Christchurch, we propose issuing new cash e-notes to do the same job. E-notes are exactly the same as the bank notes we all carry in our wallets and handbags except that they only exist in bank accounts.”

The Reserve Bank doesn’t need authority to issue new cash. When the commercial banks want cash they buy it from the Reserve Bank and pay for it with a cheque issued against their own accounts. The Reserve Bank deducts its costs of producing the cash and passes the profit to the Treasury. The profit, otherwise known as seigniorage, is most of the face value of the currency, so selling cash improves the government’s accounts. That already happens every day, the Institute said.

“In our proposal the Treasury receives the eE-notes from the Reserve Bank and then it simply disburses them in payment for goods and services to improve New Zealand’s investment in infrastructure, health and education, including earthquake relief for Christchurch,” Mr Manji said.

“The important point is that the new money goes directly into the economy and not onto the balance sheets of the banks.”

He contends an e-note injection of at least $5 billion is unlikely to be inflationary with current unemployment at close to 7%.

“Our modeling suggests $5 billion represents about $6.5 billion of new GDP, which would reduce unemployment by around three per cent and save up to $275m in interest repayments.”

“Allowing the government to go back to the failed old ways of tax increases and new debt will simply dig the country further into the economic hole that has been growing for the past 30 years or more.”