CONFERINȚA CODUL INSOLVENȚEI - Ediția a V-a
THE NATIONAL BANK OF ROMANIA PROVIDES FINANCIAL EDUCATION TO MAGISTRATES (I)
BURSA 19.04.2017

Călin Rechea (translated by Cosmin Ghidoveanu)
 
mărește imaginea
     The National Institute of Magistrates organized on April 10th, 2017, in its continuous training program, a new seminar with the participation of representatives of the National Bank of Romania.
     Under the "harmless" title of "General aspects of financial and banking law", the seminar has included several topics of great interest, not just for the participating judges and prosecutors, but also for the public, whose financial ignorance is often mentioned in the press (author's note: the full program can be seen at www.inm-lex.ro, in the "Continuous training" section).
     Under these circumstances, why didn't the NBR publish on its website the presentations of the seminar, especially when the topics discussed have concerned the manner in which money is created and destroyed, what loan applicants should know, the effects of overleverage, what the NBR did to prevent the crisis at the end of the last decade or what causes and consequences of quantitative easing policies are?
     From the NBR, the attendees included Valentin Lazea, chief-economist of the institution, as trainer, Alexandru Păunescu, the head of the Legal Department of the NBR (moderator) and Bogdan Stănescu, strategy consultant at the Chancery of the NBR (moderator).
     The first item on the agenda was the presentation called "What is money: how it is created and how it is destroyed. The role of trust in a monetary economy", which also included the role of commercial banks.
     After money was defined, as "special commodities that have a triple role - a means of exchange, a means of preserving value and accounting unit", the NBR lecturer stressed that "far more important than the three aforementioned roles is the role of money as a guarantee of trust" and said that "nowadays, with negative interest rates, the function of money of preserving value is being increasingly questioned".
     But if the monetary symbols that we call money no longer fulfill an essential requirement, that of storing and preserving value, why do we still call it money? And how much longer can we count on these "guarantees of trust"?
     The representative of the NBR then said that, up until 1971 money was backed by a rare metal (gold or silver), but subsequently "money was being created out of nothing, often in electronic, dematerialized form", but "creation out of nothing does not mean creation in exchange for nothing", because "the money is granted in exchange for a collateral", such as government bonds, municipal bonds, corporate bonds or other movable or immovable collaterals.
     Unfortunately, the lecturer of the NBR did not mention that the dropping of the gold standard has represented the switch from money as commodity to money as debt, which allowed the explosive growth of lending in the last four decades, by eliminating a mechanism that was fundamental for the adjustment of economic activity.
     Speaking about interest, the representative of the NBR said that "it is a concept with both an economic and moral meaning" and explained the economic meaning as "in an inflationary economy (as are all the economies after 1971), after a number of years, money will be worth less than that same amount is worth today", and the moral meaning is "the sanction of the person who is impatient (wants to consume today his future income) and the rewarding of those who are patient (reduces his consumption today for a greater consumption in the future)".
     However, the economic nature of interest is another. The interest reflects the time preference of consumers and of those who save. The more a resource owner prefers a future with a low consumption, the more the interest will be lower, but it will depend, of course, on the inflationary expectations. Thus, the representative of the NBR is confused when it comes to the economic and moral meaning of the interest rate, a confusion which is also sent to the magistrates.
     Going back to the nature of money, that has been illustrated the best by J.P. Morgan, in a hearing before the Banking Committee of the Chamber of Representatives, of December 1912. Morgan stressed the fundamental difference between money and credit when he said that "gold alone represents money, and nothing else".
     As for lending, J.P. Morgan was asked whether the foundation of commercial credit was represented by monetary or real estate collateral. "No sir, the first thing is character", the most influential banker of that time responded.
     "A man I don't trust won't get any money from me, even if he had every collateral in all of Christendom", J.P. Morgan continued.
     Unfortunately, money today isn't a "special commodity" anymore, just a symbol of debt. "Nowadays money gets created by two entities: central banks, and commercial banks respectively, in exchange for some deeds that are assumed to be valuable", the presentation of the NBR further states, where the notion of "valuable" is "deliberately placed in quotes".
     What are magistrates taught about how the creation of money works? "Central banks issue "hard money' (M0, the money base), and commercial banks, in the process of multiplying credit, issue broad money (M2, M3)", the NBR representative states.
     After saying that "the money injected by the central at worst produces inflation, and at best nothing", the official of the NBR said that "in exchange for existing securities, the central bank grants liquidity to the commercial banks". The new money will only be created when commercial banks grant loans to the private and governmental sector, and its volume can be multiplied 12.5 times in the case of a minimum required reserve rate of 8%. The reverse process of money destruction happens when, upon maturity of the loan, "the securities are returned to the issuer, and he returns the money paid, which ends up being sterilized by the central bank".
     Subsequently, in the presentation about the role of commercial banks, it is stated that "the main role of commercial banks is to connect the entities that save (usually households) and the entities that borrow (usually companies)", in other words they promote the banking theory of financial intermediation.
     In the context where education, not just financial, involves the development of critical thinking, the representatives of the NBR sent in to "enlighten" the magistrates have failed lamentably in that regard, because they have omitted presenting the other dominant banking theories in various periods of the last century.
     In the article "The global crisis isn't going to end until the creation of money from nothing is abandoned" (BURSA, 23.11.2016) I have presented the results of an empirical study by professor Richard Werner, of Southampton Business School of the University of Southampton of Great Britain, which states that "banks individually create money out of nothing".
     Professor Werner put to the test of reality the three banking theories accepted at various stages of the last century - the creation of money out of nothing, financial intermediation and the theory of fractional reserve lending - and has come to the conclusion that the latter two don't pass the test, after he took out a small loan from a German bank and monitored the entire lending process.
     His article, "Can individual banks create money out of nothing? Theories and empirical evidence", continues to be ranked among the top most downloaded studies from the website of the International Review of Financial Analysis (IRFA), along with two others of his works, "A lost century in economics: Three banking theories and the conclusive evidence" and "How do banks create money and why can't other companies do the same? An explanation for the coexistence of lending and of attracting deposits".
     Following his experiment, Richard Werner comes to the conclusion that only the theory of money being created from nothing is validated by reality, while "the theories of financial intermediation and of fractional reserve lending had no success at all".
     Since the NBR actually mentioned morality in its presentation before magistrates, when it comes to interest, how can the morality of charging interest on money made out of nothing be justified when being asked as payment for some money created out of nothing?
     Professor Richard Wagner isn't, however, the only supporter of the theory of creating money out of thin air through the lending process.
     In the quarterly bulletin of Q1 2014, the Bank of England included two articles concerning the creation of money out of nothing in present day economies. The second, "The creation of money in modern economy", describes in detail the manner in which banks create, out of nothing, the biggest portion of money in the economy, in the form of deposits derived from the granting of loans. Meaning banks aren't financial intermediaries, but "creators of money", and deposits aren't "sources" of the multiplication of credit through fractional reserve lending.
     That is where it's also stated that "the theory of the monetary multiplier doesn't represent an accurate description of the manner in which money is created", as "the minimum reserves of the central bank do not represent a restriction on lending".
     "The minimum reserves do not represent a hard restriction placed on lending and the central bank doesn't set the value of the available reserves either", the study of the Bank of England states, and "the relationship between deposits and loans, and between reserves and loans, operates in a manner opposite to the way it is described in the manuals".
     The two studies in the quarterly bulletin of the Bank of England are attached to the articles "The understanding of the nature of money is more important than the understanding of financial products" (part I in BURSA, 28.04.2014, and part II in BURSA, 06.05.2014).
     The conclusions are also published in the book "The End of Alchemy: Money, Banking and the Future of the Global Economy", published by Mervyn King after the expiration of his term as governor of the Bank of England, a position he held between 2003-2013.
     Under these circumstances, and given the manner in which the process of money creation in present-day economies has been described to the magistrates, a legitimate question arises: does the NBR know how money is created in a modern economy?
     Of course it does, but unfortunately, it has chosen the simplistic path of propaganda instead of education. In order to pursue the spirit of justice, magistrates are left with no option but to seek other sources of information for their continuous professional training and financial education. 

     Note: The author thanks the PARAKLETOS association for making available the materials presented in the seminar organized for the INM.

 
 

 
Readers' comments    [ add a comment ] 
Aceeasi sectiune (English Section)
Actualitate - vezi toate știrile mai jos.
Bănci-Asigurări, 12:20
LUCIAN ISAR DESPRE PLAFONAREA DOBÂNZILOR:
     Fostul bancher Lucian Isar a reacționat la decizia de plafonare a dobânzilor printr-un mesaj pe pagina sa oficială de Facebook, mesaj intitulat: "Dobânzi: plafonarea transparentă versus "pe șhestache ala Isărescu"  click să citești tot articolul
Bănci-Asigurări, 12:13
     Fondul Național de Garantare a Creditelor pentru IMM-uri (FNGCIMM) anunță lansarea Programului « Prima Casa 2018 », ca urmare a primirii, din partea Ministerului Finanțelor Publice, a acordului de distribuire pentru plafonul de 2 miliarde lei, se arată într-un comunicat remis astăzi Redacției.  click să citești tot articolul
Miscellanea, 12:01
     Potrivit datelor furnizate de agenții economici privind locurile de muncă vacante, în evidențele Agenției Naționale pentru Ocuparea Forței de Muncă (ANOFM) sunt înregistrate, astăzi, 31.312 locuri de muncă, informează instituția într-un comunicat de presă remis Redacției.  click să citești tot articolul
Bănci-Asigurări, 11:52
     Banca Națională a României a anunțat că va lansa în circuitul numismatic o monedă din argint cu tema "150 de ani de la nașterea lui Ștefan Luchian", se arată într-un comunicat al instituției, remis astăzi Redacției.  click să citești tot articolul
Bănci-Asigurări, 11:04
     Indicele ROBOR la 3 luni a stagnat astăzi la 2,09%, valoare înregistrată și în ședința anterioară, potrivit datelor publicate de Banca Națională a României (BNR).  click să citești tot articolul
Ediții precedente
Newsletter Facebook Twitter YouTube LinkedIn RSS
Jurnal Bursier
23.02.2018
BVB
     O treime din rulajul ședinței de tranzacționare de ieri a venit din transferul "deal" efectuat cu 1,5% din acțiunile SIF5 Oltenia, în valoare de 17,68 milioane lei. Schimbul a fost realizat...  click să citești tot articolul
23.02.2018
BURSELE DIN LUME
     Acțiunile de pe piețele din Europa au scăzut ieri, în condițiile în care așteptările tot mai mari legate de majorarea dobânzilor în SUA au afectat apetitul pentru risc, la nivel global.  click să citești tot articolul
22.02.2018
BVB
     * Piața a înregistrat a treia scădere consecutivă
     * Titlurile OMV Petrom au scăzut cu 1,14%
       Piața a înregistrat în ședința de tranzacționare de la mijlocul săptămânii, cea de a treia zi de scădere consecutivă, majoritatea cotațiilor emitenților listați la Bursa de Valori București (BVB)...  click să citești tot articolul
22.02.2018
BURSELE DIN LUME
     Acțiunile de pe piețele din Europa au scăzut ieri, în special în sectorul tehnologic, investitorii fiind atenți la rezultatele financiare anunțate de companii.  click să citești tot articolul
21.02.2018
BVB
     * George Brande, Interfinbrok: "Investitorii stau într­-o stare de expectativă, ceea ce poate explica rulajul redus"
       Piața principală a Bursei de Valori București (BVB) a încheiat ședința de tranzacționare de ieri preponderent în scădere, singurul indice ce a cunoscut o creștere fiind BET-FI, al celor cinci...  click să citești tot articolul
21.02.2018
BURSELE DIN LUME
     Bursele din Europa au crescut ieri, în a doua parte a zilei, datorită rezultator financiare peste așteptări anunțate de unele companii.  click să citești tot articolul
Cotații Internaționale

Curs Valutar

Curs valabil din data de 22 februarie 2018
1 Dolar australian...
1 Leva bulgărească...
1 Dolar canadian....
1 Franc elvețian...
1 Coroană cehă...
1 Coroană daneză...
1 Liră egipteană...
1 Euro...
1 Liră sterlină...
100 Forinți maghiari...
100 Yeni japonezi...
1 Leu moldovenesc...
1 Coroană norvegiană...
1 Zlot polonez...
1 Rublă rusească...
1 Coroană suedeză...
1 Liră turcească...
1 Dolar S.U.A...
1 Rand sud-african...
1 Real brazilian...
1 Renminbi chinezesc...
1 Rupie indiană...
100 Woni sud-coreeni...
1 Peso mexican...
1 Dolar neo-zeelandez...
1 Dinar sărbesc...
1 Hryvna ucraineană...
1 Dirham emirate arabe...
1 Kuna croată...
1 Bahtul thailandez...
1 Gram aur...
1 DST...
AUD
BGN
CAD
CHF
CZK
DKK
EGP
EUR
GBP
HUF
JPY
MDL
NOK
PLN
RUB
SEK
TRY
USD
ZAR
BRL
CNY
INR
KRW
MXN
NZD
RSD
UAH
AED
HRK
THB
XAU
XDR
2.9612
2.3795
2.9864
4.0377
0.1838
0.6249
0.2143
4.6539
5.2607
1.4903
3.5285
0.2269
0.4799
1.1137
0.0667
0.4656
0.9950
3.7867
0.3237
1.1583
0.5952
0.0583
0.3500
0.2017
2.7767
0.0395
0.1399
1.0309
0.6249
0.1200
161.1363
5.4832
..Lei
..Lei
..Lei
..Lei
..Lei
..Lei
..Lei
..Lei
..Lei
..Lei
..Lei
..Lei
..Lei
..Lei
..Lei
..Lei
..Lei
..Lei
..Lei
..Lei
..Lei
..Lei
..Lei
..Lei
..Lei
..Lei
..Lei
..Lei
..Lei
..Lei
..Lei
click aici pentru cursurile pieței valutare - istoric
English Section
23.02.2018
     The dismissal of chief DNA (National Anti-corruption Department) prosecutor Laura Codruța Kovesi was announced last night by Justice Minister Tudorel Toader, at the headquarters of the Ministry, after presenting the justification of the decision, presented in the form of twenty bullet points, while also taking the opportunity to mention he had been head of class, which surprised everybody, because no one was interested in his school achievements.  click here to read the entire article
21.02.2018
LIBERAL SENATOR STRIKES AGAIN
     * Senators have voted for the annual effective rate to be at most 2.5% higher than the policy rate when it comes to mortgage
     * The law will go to the Chamber of Deputies - the decision making forum
     * Senator Zamfir: "Today, we have become European as far as the manner in which loans are granted as well"
       PNL senator Daniel Cătălin Zamfir does not disappoint. His draft law concerning the capping of interest rates was the first that appeared on the agenda yesterday, in the common meeting of the specialized commissions and despite the controversies between him and a few other party colleagues, including the president of the Economic Commission Florin Cîțu, the liberal got more than he had made his objective initially - not just the capping of compensatory and penalty interest rates, but also the capping of the annual effective interest rate charged by banks and Non-Financial Banking Institutions (IFNs).  click here to read the entire article
20.02.2018
UPON REQUEST FROM ONE SHAREHOLDER,
     * The investigation concerns the deliberate reporting of inaccurate financial statements or untrue information
     * Sebastian Vlădescu: "An investigation is the only solution which would show where the money went, I know I've done my job"
       The DIICOT prosecutors have begun prosecution in rem of the actions, in the "Romcab" (MCAB) case, according to a response sent by the prosecutors to Valentin Stănescu, a shareholder in the company.  click here to read the entire article
20.02.2018
     Decorated by Traian Băsescu with the Star of Romania, Gunther Krichbaum, the president of the European Affairs Commission of the Bundestag, asks the president of the European Commission, Jean Claude Juncker, through a letter, not to suspend the application of the Cooperation and Verification Mechanism (MCV) concerning the Romanian judicial system and writes that "in the event of new attacks on the independence of the judicial system, should take into consideration initiating the procedure for the activation of article 7 of the EU treaty" (the suspension of Romania's voting rights in the EU council).  click here to read the entire article
16.02.2018
VALERY KUZMIN, AMBASSADOR OF THE RUSSAIAN FEDERATION IN BUCHAREST:
     * Lucian Bode, co-initiator of the BRUA, is asking for clarifications from Teodor Meleșcanu concerning the export of natural gas from Hungary
       We are happy that the perimeters on the continental coast of Romania (ed. note: offshore in the Black Sea) will start being exploited, because there lies inactive a very important resource of the energy industry, his excellency Valery Kuzmin, Ambassador of the Russian Federation told us in Bucharest, during Diplomat's Day.  click here to read the entire article
15.02.2018
IN THE MEETING WITH THE ANRM
     * Also discussed were the intentions of the Mazarin company to acquire some perimeters
       The management of the National Mineral Resources Agency (ANRM) met on Tuesday with Shelley Saxen, deputy economic advisor of the US embassy in Bucharest. On the agenda was last Friday's order issued by the ARNM which establishes the reference price for natural gas mined in Romania, in order to set the royalties will be calculated based on the trading prices on the hub of CEGH Vienna, according to sources close to the talks.  click here to read the entire article
14.02.2018
     * Gigi Dragomir, the president of the ANRM: "We see no reasons why the price of natural gas paid by the end consumers should increase"
     * ROPEPCA: "The proposal to adapt the royalty for natural gas made in Romania to a virtual foreign number shows a lack of sovereignty"
       The reference price for natural gas extracted from Romania, in order to establish the royalties, will be calculated based on the trading prices of the CEGH Viena hub, the National Agency for Mineral Resources announced on Friday, which issued the Order concerning the approval of the Methodology to set the reference price for natural gas extracted from Romania.  click here to read the entire article
07.02.2018
     The Black Monday of 1987 came two months after the beginning of the term of Alan Greenspan as head of the Federal Reserve. Back then, the Dow Jones Industrial Average (DJIA) fell 508 points, 22.61% below that of the previous trading day.  click here to read the entire article
06.02.2018
     * Mihai Dragoș says that the value of the Certinvest Dinamic fund units is updated slowly on the site
     * The investor raises questions about the ties between the fund's managers and the unlisted bond issuers in the fund's portfolio
       Investor Mihai Dragoș has filed a complaint with the Financial Oversight Authority concerning the open fund Certinvest Dinamic, managed by Certinvest.  click here to read the entire article
05.02.2018
     The National Bank of Romania (NBR) thinks that the National Liberal Party (PNL) is a pariah.  click here to read the entire article
30.01.2018
     The female prime-minister seems like a victory against sexism. The emancipation of our women seems to find its expression in the appointment of Viorica Vasilica Dăncilă as head of the Executive.  click here to read the entire article
25.01.2018
THE SALE OF BANCPOST HAS REOPENED THE ISSUE OF LOANS PAID ON TIME, SOLD IN HOLLAND
     * NBR: "It is still up to the courts to establish and verify the legality of the assignment"
     * Debtor: "I went to the address in Holland and there was no main office of any Eurobank entity there"
     * Cuculis: "Companies that have acquired loans are collecting interest illegally"
     * Civil Code: "The assignee may only enforce their rights on a third party after notifying the debtor that they have been assigned"
     * The bank has not notified the customers before selling their loans
     * Bancpost had not answered our enquiry on the matter, by the time the newspaper had gone to the printers
       The sale of Bancpost to Banca Transilvania, without the loans paid to day that were assigned in the past to a Dutch entity, has once again brought up the issue of loans sold abroad, even though they were performing. Customers who have found themselves in this situation have pointed out a number of irregularities in the assignment process.  click here to read the entire article
22.01.2018
     The issue of the funding of the budget deficit will become acute in 2018, as the government authorities show us that they haven't learned anything from last year's experience.  click here to read the entire article
22.01.2018
RULING OF THE COURT OF APPEAL
     * Profit.ro Publishing owes the Romanian state approximately 360,000 Euros, and "N.ro Agenția de Știri" SRL, approximately 460.000 Euros
       Journalist Cristi Popa has won in the Court of Appeal the lawsuit against Profit.ro Publishing SA, by which he had disputed the decision by which he had been laid off in 2016, as the court decided that he would be reinstated to the job he held before his layoff, as well as the payment of compensatory salaries.  click here to read the entire article
19.01.2018
GIGI DRAGOMIR, REINSTATED AT THE ANRM
     * The dismissal of Gigi Dragomir as chairman of the ANRM, was one of the last decisions made by Mihai Tudose
     * The reinstatement of Gigi Dragomir as head of the ANRM, among the first decisions made by Mihai Fifor
     * Daniel Zamfir, PNL: "I hope that the reinstatement of Dragomir to his own job represent the admission of the mistake made by Tudose, concerning the obstructing of the updating of the reference price for natural gas"
       Former prime-minister Mihai Tudose and the current interim prime-minister Mihai Fifor, seem to have something in common, aside from the position they fill - they seem to be seriously concerned with the natural gas royalties.  click here to read the entire article
.