It is no surprise a former Governor of the Reserve Bank should seek to defend the banking system from its critics.
But in denying the accuracy of points I made in the Herald about how the banks operate Don Brash accused me of ‘peddling nonsense’.
I made two basic points. First I asserted the banks do not as usually believed – simply act as intermediaries – bringing together savers (or depositors) and borrowers to their mutual benefit.
Secondly I said the vast majority of new money in circulation is created by the banks ‘by the stroke of a pen’ and they then make their profits by charging interest on the money they create.
If this is ‘nonsense’ the ‘peddlers’ include some very distinguished economists.
My legal training has taught me the value of being able to turn to reliable authority to support what I say.
In my original piece I referred to a Bank of England research paper – published in the bank’s first Quarterly Bulletin 2014 – which describes in detail the process by which banks create money.