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.

Institute spokesperson, Raf Manji says an injection of new money into the financial system is a win-win for the Government and the people of New Zealand.

“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.”

He says the New Zealand Reserve Bank needs no 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 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.

“In our proposal the Treasury receives the E-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.

“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 NZ$5b is unlikely to be inflationary with current unemployment at close to seven per cent.

“Our modeling suggests $5b represents about $6.5b 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 thirty years or more.”

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About Sustento Institute
The Sustento Institute is an independent policy development organisation based in Christchurch, New Zealand. Its purpose is to develop policy solutions that will lead to a more sustainable society.

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