Ethical Banking, an Oxymoron? with Bart J. Krouwel and Christian Felber

Aug 16, 2017 by

by Yara Himmiche & Manar AlSagob

It’s August 4th Friday – the end of the second week here at BOKU university. Today’s topic is Alternative banking and sovereign money creation.

We first started with Bart Jan Krouwel, the co-founder and first General Manager of the fully independent Triodos Bank Ltd. The lecture started with the challenging question that Mr. Krouwel had to face himself when setting up Triodos bank back in the 80’s: “How can we set up a completely new bank working with completely different systems?” The question stemmed from dissatisfaction with the current system, but also a strong belief that change could be implemented.

Krouwel and his team work on ethical banking, a revolutionary concept which includes the consumer in the bank’s decisions. They ask people: “How do they want their money spent? How much interest on their savings can they pay?” – from zero to a rate that is still less than the market rate. Interest rates are adjusted depending on client capabilities rather than client size in terms of savings! This type of banking ensures transparency through, for example, monthly reports being sent to its clients on how the money is being spent and where it flows. This is based on their belief that information and communication are key aspects in ethical banking. A system which doesn’t indebt its clients with security loans, but works with guarantees from people to help initiators and entrepreneurs to set up their own businesses to tackle unemployment. Not only is the bank lending money, but they also invest in helping these businesses grow by providing consultation time to ensure that businesses become resilient enough to deal with problems.

“We are often solving the consequences, not the causes” says Mr. Krouwel as he urges us to move forward and fulfill societal demands. Consumers need a change in mindset to make the ethical choices but he ensures us that when we’ll start, we will find people to join. The issue lies in regulation, not people, he warns us. But as we sit in a classroom full of tomorrow’s leaders, I am hopeful that more flexible regulations will be put in place to allow for social prosperity.

The morning’s lectures continued with Christian Felber describing the process of money creation. Despite using money every day, people do not know what money really is, how it is created and its impact on society. This lecture provided us with insights that allowed us to understand that money is created when banks grant loans. Christian Felber has also suggested to reform the monetary system, Central banks should create all types of money, i.e. not only coins and notes but also electronic money. That’s what is called “sovereign money” or “public money”. It is a legal trend created exclusively by the government and issued by the central bank in form of coins and notes (cash money) and reserves (non-cash money).

The creation of sovereign money can maybe help the economy to grow without depending on households to take loans. This perception would be world changing, because sovereign money is safe money and in a banking crisis there would be no risk of payment services collapsing.

Again we are faced with the question that remains to be answered: How do we make banks serve society and not the other way around?