Recently the Glass Pyramid has received requests to provide an explanation of MyRBA that is easily explained and digested over a few crackers and a bowl of hummus or perhaps a beer or six. Boiled down the essence of the MyRBA proposal is nothing more than the end of the monopoly over RBA deposit accounts that the private banks currently enjoy. It is as simple as that. Anyone who wants to, should be allowed to open and operate a deposit account at the RBA. This simple reform is the critical first step in fundamental reform of our broken and dysfunctional monetary system.
What is the monopoly enjoyed by the private banks?
Unlike Australian notes and coins, which anybody can use for transactions or store under their mattress, ONLY banks are currently permitted to open deposit accounts at the Reserve Bank of Australia. This is a big deal. How many transactions do you currently complete using Australian notes and coins? How much of your savings do you have in notes and coins under the mattress (or in the freezer)? Probably not many and probably not much.
Deposit accounts have been the main game for completing transactions and accumulating savings for a long time yet the general public and non-bank organisations are currently not allowed to open a deposit account at the RBA. Keep in mind that the Reserve Bank of Australia is the safest bank in Australia and is the foundation of our public monetary system. It cannot ‘go broke’. There is no safer place than the RBA to keep your money yet you are not allowed to open and operate a deposit account at the RBA. If you don’t think your private bank is risky ask yourself why the taxpayer has to provide a guarantee to protect your savings in a private bank deposit account. The truth is your private bank deposit is just an unsecured investment and if the bank goes bust you will lose every penny.
The RBA is 100% safe. Your private bank is not.
Why are the general public and other organisations not allowed to operate deposit accounts at the RBA?
There is no good reason. The RBA already operates deposit accounts for the private banks so offering deposit accounts to members of the public or non-banks who would simply mean increasing the number of deposit accounts in their computer system. If we can spend $100 billion dollars on some new French Submarines or $70 billion dollars on JobKeeper we can surely scratch up a few million dollars to equip the RBA with a bigger computer, a website and a few apps to manage more deposit accounts.
Once upon a time people used to visit bank branches regularly to deposit and withdraw money from their accounts. Back in the olden days allowing people to operate a deposit account at the RBA might have meant the RBA would be forced to open branches right across Australia. But few people now go to a bank branch to operate a deposit account. They pay with plastic cards or increasingly their phones or via websites. Anyone who does want to deposit or withdraw from their RBA deposit account “in person” or “across a counter” will be able to do so at an Australia Post Office or some other agent of the RBA.
So there is no practical or logistical reason for prohibiting the general public and other non-bank organisations from operating a deposit account at the RBA.
So why do the private banks want to keep their monopoly over deposit accounts at the RBA?
For one very simple reason. Anyone who wants the convenience of using a deposit account is currently FORCED to use a private bank as they cannot open a deposit account at the RBA.
Naturally a private business like a bank would simply love to have the government pass laws to deny the general public access to a service provided by the government (RBA deposit accounts) so that the general public is FORCED to use a service offered by the private business (Bank deposit accounts)?
But it is just bonkers?
Why should you and the person you wish to transact with be FORCED to open bank accounts with Westpac or NAB just so that you can complete a transaction without using cash?
If both of you were allowed to open 100% safe RBA deposit accounts you would not need to deal with a private bank at all. You could just transfer the required amount between your respective RBA deposit accounts.
Why should you be FORCED to make an unsecured investment in a private bank just so you have somewhere to store the notes and coins issued by the RBA?
Why shouldn’t non-bank organisations including large public companies be able to operate 100% risk free deposit accounts at the RBA? Many organisations have a need for 100% safe liquid financial resources that are available at all times. A deposit account at the RBA is a much better and simpler solution than an unsecured investment at a risky private bank.
Of course you would always remain free to keep your Westpac or NAB bank deposit accounts, especially if you like your private bank mining your transaction data to work out if you might be interested in some debt peddler product lines, but why should you be FORCED to operate a bank account with a private bank.
Even worse. Why are other non-bank organisations prohibited from operating deposit accounts at the RBA and thereby prevented from competing with the banks? If Westpac and NAB are able to offer bank deposit accounts because they are allowed to operate RBA deposit accounts why not allow other organisations to open RBA deposit accounts and compete with them by offering deposit account services?
The ONLY reason that you and everyone else (including non-bank organisations) are prohibited from opening and operating a deposit account at the RBA is to ensure that the private banks have a monopoly on those accounts and the advantages they offer – including 100% safety.
This monopoly FORCES you and everyone else to enter into business relationships with private banks and limits competition as only a licensed bank is able to provide you with deposit account services.
The recent Banking Royal Commission made it very clear how the banks are abusing their privileged status in the Australian economy and this status is built on their monopoly access to deposit accounts at the RBA and it must stop.
Write to your local member of parliament and tell everyone you meet that we must
END THE BANK MONOPOLY OF THE RBA NOW!
Some discussion in the comments to the following article
The solution to draining this puss filled sore on the body politic is to end the private bank monopoly on operating deposit accounts at the RBA.
Start slowly by increasing the classes of folk who will be permitted to open and operate a RBA deposit account.
There will be plenty of non- bank organisations who will love having direct access to a 100% liquid and 100% safe financial asset.
The early adopter individuals are likely to be few in number and will allow time for the RBA to ramp up their capacity.
The accounts will pay no interest.
And the RBA will not be making loans as its job is the monetary system and not debt peddling. If people want a public sector debt peddling option they can set up something up to do that but it is not the job of the RBA.
Sure, ending the banker monopoly will require changes to some bank regulations but nothing dramatic.
Planning the required reform beats the usual “we can’t do nothing but wait for a bust” mentality that is sadly all too common around here.
How does this fix the problem?
Deposits in the banks aren’t the problem, cheap/free loan creation is.
It fixes the problem of the banks having a monopoly of easily transferrable and stored central bank liabilities.
They do not have a monopoly over central bank liabilities in the form of notes and coins.
But they have been given a monopoly over central bank liabilities in the form of an account at the RBA.
It is a useful exercise to ask yourself how is this monopoly in the public interest and why the banks are so interested in preserving this monopoly?
If the monopoly was not important it should be no issue to end it and allow everyone to operate deposit accounts at the RBA. Why not allow non banks access to the most risk free financial asset available – liabilities of the central bank?
If you give some thought to the implications of this monopoly you will see that most of the other problems we spend so much time talking about are linked to this completely unnecessary and out of date monopoly. Especially the issue you mention – excessive bank credit. Bank credit is effectively money in our economy and the only reason banks are allowed to create it so freely and so unproductively is closely linked to their monopoly on operating central bank deposit accounts.
Think about what government bonds are and what the demand for bonds might be like if everyone is able to maintain a deposit account at the RBA.
Of course there are plenty of other economic problems that require solutions but getting rid of one dysfunctional monopoly at the core of the economy is close to the top of the list.