Still reeling from the economic catastrophe that struck in 2008, Iceland and its Parliament are debating a plan that would dramatically restructure the tiny nation’s monetary system by stripping commercial banks of the legal ability to create currency out of thin air — and handing that power exclusively to politicians and central bankers under what is being labelled a “sovereign money” system. The proposal to quash private bankers’ fractional-reserve system, where banks literally bring new currency into existence with government permission and then charge interest on it, is already making major waves. It is being described by analysts as everything from “radical” and “revolutionary” to a prescription for “an almost Soviet-style banking system.” Either way, the implications of the debate are enormous.

In a parliamentary report released on March 31, commissioned by the prime minister about the monetary idea, Chairman Frosti Sigurjonsson on Parliament’s Committee for Economic Affairs and Trade suggested that a “fundamental reform” of Iceland’s monetary system was needed. “Iceland, being a sovereign state with an independent currency, is free to abandon the present unstable fractional reserves system and implement a better monetary system,” explained MP Sigurjonsson, who authored the report. “Such an initiative must however rest on further study of the alternatives and a widespread consensus on the urgency for reform.”

The explosive 110-page report, entitled “Monetary Reform: A Better Monetary System for Iceland,” offers a great deal of educational material on the inherent flaws of the current fractional-reserve banking system. In essence, with full government backing, the existing monetary system literally allows commercial banks to create fiat currency out of nothing, based on the amount of deposits held by the commercial bank. The banks then charge customers interest payments on the currency that they created out of nothing. Countless analysts have blasted the existing system as a scam and a fraud that serves mostly to loot the public.

Of course, The New American magazine has been attempting to raise awareness of this system for decades — along with the inherent instability it produces, as well as how it allows government-backed bankers to get rich at public expense. The Icelandic report, if nothing else, should serve as a valuable educational tool to create more widespread public understanding of the systemically flawed system now in place across virtually the entire globe. The parliamentary document itself acknowledges that education on the existing system is necessary if it is ever going to be seriously reformed.

“For more than half a century, Iceland has suffered from serious monetary problems including inflation, hyperinflation, devaluations, an asset bubble and ultimately the collapse of its banking sector in 2008,” the report’s preface explains, pointing to the fractional-reserve system as the culprit and adding that other countries have also experienced similar problems. “Despite its frequent failures, the banking system has remained essentially unchanged and homogenous around the world…. A necessary step toward monetary reform is to increase awareness of the drawbacks and risks of the present system and why reform is needed.”

In the summary of the report, it explains that “commercial banks expanded the money supply nineteen-fold in the fourteen year period that ended with the banking crisis of 2008.” And while the monetary lunacy was not limited to Iceland — in the United States, the privately owned Federal Reserve created more than $20 trillion to bail out mega-banks and crony companies around the world — the Icelandic economy was among the most deeply affected. In fact, the economy of the tiny island, with a population of around 300,000, practically imploded as the European Union and “banksters” tried to foist unimaginable debts incurred by private banks onto the backs of bewildered taxpayers.

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