I appreciate Richard Mowbray's point about irresponsible and dishonourable governments, but where on earth did he get the idea that the state is the monopoly supplier of money (Letters, May 18)?

If this is so, why do governments need to borrow from banks?

More than 97% of all money in circulation is created by banks in the form of interest-bearing loans. As an example I quote from the Bank of England Quarterly Bulletin, 2007: "By far the largest role in creating broad money is played by the banking sector ... When banks make loans they create additional deposits for those that have borrowed."

The more people and the Government borrow the more new money is fed into the economy. When banks begin to ration out loans the economy is starved of money.

It is naive in the extreme to expect bankers to reform the system by which they enrich themselves. Even the moderate and limited proposals of the recent independent commission on banking are being resisted.

What we need is a money-creating body, transparent and accountable to Parliament, that is independent of bankers and politicians – both have shown themselves to be, in different ways, untrustworthy and incompetent.

If anyone doubts the assertion that banks create the nation's money I suggest they write to or email the Public Information and Enquiries Group of the Bank of England, Threadneedle Street, London.

Christopher Gilfedder,

91 Langbar Crescent,


Your editorial on Greece ("Give Greece a ray of light", May 18) and Richard Mowbray's letter are more linked than they appear at first glance.

Mr Mowbray in seeking to provide a reason to limit the economic role of the state actually gives it a role that it presently does not have: monopoly supplier of money.

While the state (or in the eurozone a body sanctioned by several states) is certainly the monopoly supplier of banknotes and coins (notwithstanding the fact Scottish banks can withdraw state banknotes in favour of their own), it is certainly not the monopoly supplier of credit.

That role is largely performed by private banks. When a bank lends money it creates new money and while it must have the assets to be able to draw from the central bank in case it needs more central bank money to back this up, the amount of credit created by banks always exceeds the amount created by the state.

Returning the creation of money back to the state would be exactly the sort of radical change that would make for a more stable economy.

This is true of all economies, but it has particular bearing on Greece as it needs more money and in practice this must come from the European Central Bank (ECB) rather than private banks. Your editorial points out that what is being imposed on Greece is akin to what was imposed on Germany at Versailles, something about which I have long worried.

I do not know if those behind the bailout are seeking to punish Greece for perceived irresponsibility, a truly wicked course of action, or if they honestly believe that the "reforms" wrecking Greece will help it in the long run, a truly stupid course of action, but with way they are crippling the country.

If Greece is to remain in the euro, not necessarily the best course of action in the long run but the one that is the democratic will of the people, then it must be given the opportunity to grow.

It should be able to continue to draw on the bailout fund in order to meet its spending obligations while all austerity imposed as a condition must be ended. This is not enough; Greece is producing 20% less now than it was before the crisis. It must be realised that it is not physically incapable of returning to previous (or greater) production levels but rather due to a combination of the banking crisis and the austerity imposed there is not enough cash in the economy to allow for this.

The solution is the creation of more money, and in the eurozone it is the ECB that must do this. Instead of the failed quantitative easing for banks, the measure needs to be carried out for the country. New money equal to perhaps one-fifth of GDP must be created to be loaned to the Greek government at ultra low or even 0% rates of interest, conditional on policies that will create new employment. If the new money is matched by new economic activity it will not be inflationary.

Ultimately Greece needs something akin to a Marshall Plan to rebuild, but in the medium term this is the only course of action that can save it.

Iain Paterson,

6 Methven Avenue, Bearsden.

I was a polling agent for the SNP outside my local primary school on May 3. It was a long, cold day enlivened by friendly exchanges with the Labour polling agent. At one point he informed me that he thought my party were "tartan Tories" and I told him I would have nothing to do with the SNP if that were the case. He had the good grace to believe me.

Now I read Richard Mowbray's assertion that the SNP are not Tories but nasty "socialists", as are members of the Green Party.

Indeed, he accuses the Greens of wishing to turn Scotland into an Amish-type community. The Greens can make their own answer but I've noticed that adherents of the Amish way of life appear more contented with their lot than those of us who are burdened with the capitalism and Unionism Mr Mowbray commends.

His theory is that "self-serving" politicians should have nothing to do with regulating failing banks. That is, however, what happens in a democracy. Who else can we ask to sort it out?

David C Purdie,

12 Mayburn Vale, Loanhead, Midlothian.