CAP advocates that bank ratios have to be reduced dramatically with the use of statutory reserves. At the same time the proportion of money created by governments (who own the patent on behalf of the people) through the Bank of Canada has to be substantially increased. This will allow the fiscal flexibility necessary to balance their budgets and help finance critically important infrastructure and social projects. Many other problems could be solved by a substantial infusion of debt free government created money. This is what Monetary Reform is all about.

The Problem:
Money as Debt: The fractional reserve banking system and private banks

95% of our money supply is borrowed into circulation and created by the private banking sector as interest-bearing debt through a system called fractional reserve banking. This is a process where private banks can leverage and loan out 10 – 20 times the amount of money that is in their deposits.

This means nearly all money is simply virtual – computer entries by highly leverage privately-owned banks that create money out of thin air. They are allowed to lend their capital up to twenty times or more and collect interest on it each time. Still worse many of the loans are made to hedge funds and the financial industry that makes huge profits without creating any new real wealth that is tangible and useful.

Drowning in Debt, many provincial governments and municipalities turn to the private sector for loans to fund programs beneficial for the people: education, health care, culture, and infrastructure. The interest payments building up over time have drained their treasuries and have kept them in a perpetual cycle of debt. In health care, many government run programs are being cut or sold off to the private sector. In education, vital programs are being cut like sports and music, and school closures are happening all over the country. In order to meet interest payments, the arts and culture programs are having their funding drastically reduced by governments. This is all the result of money created as interest bearing debt lent into existence to municipalities and provinces by the private banks.

The expansion of our money supply is necessary to fund productivity and the expansion of our physical economy. The expansion of our money supply is necessary to adequately fund health care, education, the arts, and infrastructure. But it does not have to be created as interest bearing debt by the private banking system. It can be created as debt-free money by our government through the publicly owned Bank of Canada.

Bank of Canada History
The Bank of Canada, unlike the Federal Reserve in the U.S. is wholly owned by the people of Canada. It was nationalized in 1938 and was used very successfully to fund infrastructure, social programs, health and education for the benefit of all Canadians. It was used to bring us out of the depression; it funded our WWII effort, built highways such as the McDonald-Cartier freeway, public transportation systems, subway lines, airports, the St.Lawrence Seaway, our universal healthcare system, and our Canadian Pension plan. Unfortunately, since Canada adopted Milton Friedman’s theory of Monetarism in 1974 and of globalization, Canada has gone through the private banking sector to finance its needs. This has caused the federal debt to increase nearly 3000% Canadian Debt.

After 1975 our federal debt started to explode; growing for the next 12 years at more than 20 percent per year. It broke the 100 billion mark in 1981 and 200 billion in 1985. While the growth slowed in 1988, our federal debt continued to climb breaking 300 billion in 1988, 400 billion in 1992, 500 billion in 1994. It peaked in 1997 at 556 billion per year. Today our debt is approximately 500 billion. Canada pays approximately 31 billion in interest every year; this is 171 million dollars a day.

The Solution: Monetary Reform
CAP believes that the creation of money should be shared equally by the private banks and the publically owned Bank of Canada.

We must reduce the amount private banks can leverage their money by instituting statutory reserves and return to the bank of Canada for a minimum of 50% government created money.

Bank of Canada Act: Section 18 - listed under Business and Powers of the Bank

The Bank of Canada Act section 18 sets out the banks authority for lending to our governments. In short it states the bank of Canada may make loans to the government of Canada or any of the provinces who in turn can lend to their respected municipalities.

These loans can be made at nearly zero interest. This can reduce cost by over 50% because only the principal will be paid. In a word, the BoC may create the money to finance federal projects on a near interest-free basis. It may, if it wishes, lend money to the provinces and municipalities as well.

It works this way: the coupons paid on government debt held by the Bank of Canada find their way back to the federal treasury with the rest of the bank's earnings. In recent years this important function of the bank has been left, in large part, to rust.

Statutory Reserves
The statutory reserve is the requirement that banks deposit with the Bank of Canada a percentage of the [cash] deposits they received from the public. These statutory deposits do not earn the chartered banks any interest (i.e. the Bank of Canada does not pay out any interest to the charted banks on this reserve). The percentage rate of the reserve requirement can vary determined by an overheated economy.

A central bank (Bank of Canada) properly used in the sovereign best interest of a nations' citizens requires the use of statutory reserves. Also previously known as fractional reserves, statutory reserves are an alternative to interest rates for regulating the economy.

Higher interest rates hit everything in the economy, and especially hurt the unemployed and do nothing to inhibit bank lending, which occurs whenever a profit is anticipated regardless of the rate of interest.

Statutory reserves can cool an overheated economy without raising interest rates, and reduce the amount of money private banks can lend into existence as interest bearing debt.

Statutory reserves give the government the use of interest free money to the extent permitted by the Bank of Canada Act.

Vision
We must increase statutory reserves and return to the Bank of Canada for a minimum of 50% of Government-created money (GCM). It is essential to maintaining our sovereignty. Government-created money through the Bank of Canada can be used to:

• Incrementally repatriate our debt bank to the bank of Canada, eventually eliminating the need of paying interest to private banks. This means lower income taxes for all.
• Fund new infrastructure (roads, bridges, rail, hospitals, and schools) could be built at a fraction of the cost because of reduced interest costs.
  Lend to provinces and municipalities at near zero interest with the proviso that they maintain a certain level of quality of healthcare, housing and education. That means lower property taxes for all.
• Improve our universal health care system, reducing wait times and removing public-private partnerships. It is a proven fact that public healthcare systems are more efficient than private ones because profit is not the motive.
• Ensure that our public school systems and teachers are equipped with all that is necessary to bring forth future generation of well-informed, well-round, well-educated adults capable of critical thinking.
• Lower and/or subsidize university tuitions so that all citizens would have an opportunity to attend institutions of higher learning should they wish, without ending up in the poor house.
• Alleviate the suffering of the poor, homeless, drug-addicted and mentally challenged
  Invest in green technologies to save our environment
• Invest in family farms and new agricultural technologies that would eventually benefit all citizens
• Support Canadian culture by funding the arts: visual art, literature, and the performing arts: music, dance, film, etc.

We need to reform the monetary system by reducing interest bearing bank created money and increase zero interest government created money which can be lent to our governments: federal, provincial, and municipal. This is not inflationary because inflation reflects the amount of money in existence not who creates it! Help support the Canadian Action Party's campaign for monetary reform and a more prosperous, vibrant society.