Sovereignty and Seignorage
A Legal Privilege and Financial Mechanism of Nation
>For whosoever hath, to him shall be given,
and he shall have more abundance;
but whosoever hath not, from him shall be taken away
even that he hath." (Matt. 13:12)
1. Introduction 2. Monetary Financial Institutions
= the Bank of England + MFIs + OFCs + PNFCs
3. The States Annual Budget Always enough
for War, never enough for Health and Education (Labour
MP Norman Smith 1944) 4. Seignorage
a Legal Source of Income for Central Government
5. Dollarization the Financial Mechanism for
Globalising Indebtedness 6. Sovereignty
the Privilege to Issue, Administer and Distribute
National Currency 7. Inflation the Current
Measure of Financial Stability
8. GDP the Current Measure of Economic
Growth 9. Sovereignty & Seignorage
the National Companion of Contraction &
Convergence, the Global Policy Framework for Climate
Change 10. Climate Change: The Legal and
The sovereignty of a nation implies issuing, administering
and distributing its national currency through its
government. Historically, this was the privilege of
the King. But in 1694, the Bank of England was set
up with the first national debt of £1.2m at
The purpose was for the King to employ soldiers for
a war against France. But the effect was for the King
to become dependent on the bank by having to make
interest payments. This national debt mechanism has
been copied ever since by central banks that set themselves
up alongside nation states world-wide. Globally, there
are 189 central banks in operation.
Economic education omits that this financial / political
mechanism is fundamentally flawed, since it is built
on the exponential growth of compound interest. If
Jesus had invested £1 at an interest rate of
2% at age 32, he would own £171.689.687.789.637.120
(quintillions) by 2004. The amount resulting at 8%
from the first British national debt is £27.576.900.173.448.780
The current public sector net debt is
£432bn according to the National Office of Statistics
to which 36 accounts or debt instruments
contribute. Among these are Central Government holdings
of Local Government debt as well as Local Government
holdings of Central Government debt. In 1998, the
process of administering the national debt has been
institutionalised into the National Debt Office.
Between 1815 and 1854, the debt was cancelled.
Nowadays, every annual budget has a regular amount
of about 10% allocated for debt interest payments,
The chart below illustrates long term data relating
to public sector borrowing from the National Office
of Statistics. Within the national debt context, it
would suggest other reasons for boom and bust cycles
than conventionally proposed by economists, if not
question economic measures as a whole and certainly
the use of statistics for purposes of political control
and financial advantages.
Seignorage is the income that the state makes from
the difference between the cost of printing notes
and minting coins and their face value. In the late
1960s, the share of notes and coin of the total
money supply was around 30%. Since then it has gone
down to1.7% in 2004.
The state ignores seignorage as a source of income
and borrows or taxes instead. But corporations and
wealthy individuals make use of tax havens.
The dwindling share of interest-free money in circulation
has thus caused rising indebtedness not only for states
but also for nations as a whole.
Furthermore, the state has less and less money available
for public services and the common good. Therefore
it has become virtually powerless to set agendas and
finance technologies that would stop climate change
and reverse the trend of global warming.
At the same time, Parliament has been made aware that
the global policy framework Contraction & Convergence
needs to be adopted and turned into policy if future
generations are expected to live on an inhabitable
planet. Western nations whose wealth was created by
burning fossil fuels need to contract their emission
quotas so that, together, all nations can converge
towards sustainable quotas.
This summary therefore describes the institutional
structures and financial processes that are at work
so that lawsuits can be structured such that the legislative
can regain the power lost to unaccountable monetary
financial institutions and wealthy national and multi-national
Monetary Financial Institutions = the Bank of
England + MFIs + OFCs + PNFCs
The money supply to the Nation is supposedly the
effect of demand, while inflation is supposedly controlled
by the Bank of Englands Monetary Policy Committee
setting interest rates.
In a speech to the Confederation of British Industry,
the Chancellor Gordon Brown said on Nov. 18th, 2003:
While there is a link between money supply and
inflation, in open economies with liberalised capital
markets, rigid monetary targets just cannot work.
He claimed that an inflation target of 2% guarantees
both stability and economic growth.
The term monetary is used when referring
to the currency of a nation, while financial
refers to money as a whole. On the Bank of Englands
statistical data base the money supply is not published
as a sum. It used to consist of two components or
aggregates and has been enlarged by a
third one in 1996:
state-created notes and coin which is interest-free
and called M0 or narrow money; this privilege
of states, to create and issue their national currency
for the benefit of their citizens, is called sovereignty;
within the Nation, this state-created money has been
called publicly-created money in a number
of Early Day Motions that we got tabled
in contrast to:
bank-created credit which yields interest; in publicly
accessible data bases it is called M4, broad
money or wholesale M4.
Institutionally, M4 is created by MFIs: Monetary and
Financial Institutions or banks and building societies.
M4 lending also referred to as retail
M4 is interest-yielding credit to
OFCs: Other Financial Corporations and
PNFCs: Private Non-Financial Corporations
Households, Individuals and Non-Profit Institutions:
secured by dwellings or unsecured.
The above chart shows the three components M0 (interest-free
cash), M4 and M4 lending (both interest-yielding credit)
with the startling messages:
Nearly all money in circulation is interest-bearing,
i.e. following the mathematical laws of exponential
growth of compound interest
The rate of supplying interest-bearing money to the
nation has been dramatically increased by adding M4
lending since 1996
The overall rate of growth is exponential in nature
which in itself is inherently unsustainable.
Questions to ask are:
Who benefits from interest payments as passive income?
Why do economists not teach the mathematical laws
of compound interest behind national debts?
How can the law be used to reverse the trend that
the more measures are taken to teach citizens about
mortgages, making them financially capable
and companies internationally competitive,
the more the world becomes indebted, polluted and
The States Annual Budget Always enough
for War, never enough for Health and Education (Labour
MP Norman Smith 1944)
Governments claim that they have to either tax or
borrow to raise money. In addition, they could
Print more notes and mint more coins (cash)
but this is supposed to cause inflation
Get more income from creating more cash, i.e. seignorage,
but the claim is made that there is the problem of
distribution into the economy.
Spend such publicly created money as grants
as they do anyway. Instead
there is never enough money but always a 10% debt
interest payment in each annual budget
it has become policy in science and technology to
let venture capital finance innovation
the privatisation of public services ensures that
more managers and shareholders benefit than civil
servants and politicians.
Economists teach that the states annual budget
represents about 40% of the total money supply. On
the Treasurys website, budget data is only available
since 1998. Then the share was at 24% and went down
to 19% in 2004.
Why do five successive Early Day Motions relating
to publicly created money only get support
from in total 63 MPs?
Why does the government not respond and commission
an independent inquiry into the possible benefits
of publicly created money?
Why is it not public knowledge how money supply is
linked with inflation via interest payments?
Why was the Debt Management Office established in
Why was the establishment of the Financial Services
Authority deemed to be necessary in 2000 addressing
four statutory objectives:
and the reduction of financial crime?
Why does the Financial Services Authority decide to
spend £1.5m on educating about mortgages? [Press
release November 2005]
Why does the public believe that the Government runs
Why does Gordon Brown think that accountability of
the Bank of England is covered by Target Two
Point Zero for inflation when inflation is measured
only by the quarterly increase in percentage with
1996 taken as 100%?
Why are banks profits at record levels while
the population is in record debt?
The introduction of M4 lending in addition to M4 introduced
new institutions as sources of credit and thus interest
payments as passive income:
SHAPE \* MERGEFORMAT
The consequences are:
On the level of institutional control over spending
money as grants or credit
the states sovereignty to create the nations
money is not only shared between MFIs but also OFCs
on the level of quality of money in the supply
the increase of interest-yielding credit implies an
increase of influence of the financial economy over
the real economy of environment related products and
on the level of amount of money available for circulation
since 1997, M0 has increased by 1.4%, M4 by 39.5%
and M4 lending by 59%.Money needs to come from the
total supply to pay for repayments of both capital
and interest. However, it is difficult to illustrate
the share of interest and the share of capital in
the total money supply since interest payments are
transactions that are recorded but statistically not
But over longer time periods, more and more people
cant find enough money for interest payments,
are more and more indebted and have their houses repossessed.
Exponential growth works for positive interest on
capital in the same way as for negative interest on
debt, as illustrated in the chart below.
Exponential growth is inherently unsustainable, independent
of the immorality of the rich getting richer and the
poor more indebted.
Seignorage a Legal Source of Income for
The Italian consumer group ADUSBEF has won their
case against the Bank of Italy on the grounds of distributing
the income from seignorage to the nation rather than
the shareholders of the Bank of Italy.
In Canada, John-R: Dempsey is a forensic litigation
specialist and criminologist. His preferred areas
of law are: white collar crimes, government corruption
and fraudulent banking practice. John has filed three
class actions The People vs the Banks.
There are currently 58,500 Google hits on seignorage.
The Treasurys website does not produce any search
results nor does the Bank of Englands or the
National Office of Statistics. However, Dollarization
and Seignorage can be found on
The article by authors from the Rutgers University
and the University of Pennsylvania begins with When
a country decides to replace its domestic currency
with the US dollar, it automatically ceases to collect
the stream of seignorage revenue, which is instead
redirected towards the US central bank. A central
issue in the debate about dollarization is the distribution
of seignorage income between the governments of the
United States and the economies that are considering
the adoption of the dollar as the sole legal tender.
One of the main road blocks for dollarization has
been the reluctance of the United States to agree
to any kind of formal sharing rule.
Since seignorage is a privilege of the state, the
legislative process ought to be used to reinstate
this source of income for public services and, above
all, climate change and environments as the common
Dollarization the Financial Mechanism for
Besides 189 central banks, there are many private
banks that operate internationally and three international
The Basel Bank for International Settlements
The International Monetary Fund
The World Bank.
The Federal Reserve Bank contains data on the US money
supply of dollars which cant be compared with
the UK supply of Sterling, since US figures are in
$billions and UK figures in £millions. However,
what can be compared is the increase between a start
and end date, i.e. the growth of the respective money
Between the comparable periods for which data is available
on the web, the US supply grew by 52.4% while the
UK supply grew by 45.9%.
The dollar is the international reserve currency and
the data on the money stock is unlikely to include
all dollars in circulation and accounts world-wide.
The book Modern Jihad by Loretta Napoleoni examines
the dollars behind the terror networks estimated to
represent some 10% of all financial transactions.
Basel statistics on the web detail figures about lending
and borrowing countries.
The World Economic Outlook 2005 report of the IMF
is on Building Institutions. The national debt started:
by a debt as the basis for paying an army. Now institutionalised
credit is used to pay armies of civil servants. Its
chapter IV begins by describing inflation targeting
having become an increasingly popular monetary
strategy with 21 countries (8 industrial and 13 emerging)
having become inflation targeters.
Sovereignty the Privilege to Issue, Administer
and Distribute National Currency
Why does Gordon Brown, admitting that there is a
link between money supply and inflation, want to please
the US and advocates economic expansion through
free trade and free markets as the key to growth and
prosperity? See Press Release Nov. 18, 03:
Inflation the Current Measure of Financial
On the Bank of Englands website, Target Two
Point Zero is a sub-section to educate students about
the supposed ability to regulate the money supply
through interest setting.
It also highlights the basis for accountability of
the Bank of England to the Treasury: as soon as the
inflation target of 2.0 is exceeded either above or
below, political measures are to be taken.
The target is given by the Consumer Price Index (CPI),
a measure introduced in 1996. Set at 100% for that
year, the use of the CPI is misleading. For what is
published is the rate of change rather than absolute
values, and at short-term (monthly and quarterly)
intervals without historic pasts and prospective developments.
However, as outlined in the IMF report, this stems
from the definition of price stability
by Alan Greenspan, Chairman of the Federal Reserve:
not to take into account prospective price changes.
Targets are thus short term increase figures
ignoring long term developments.
Short term figures always look acceptable:
a maximum of 1.6%, 3%, 6.1% and 3.4% for four consumer
price indices between 1988 and 2004.
But the longer term figures between 1988 and 2004
indicate increases of
39.1%, 31.6%, 46.4% and 53.2% respectively.
In addition to CPI, the Retail Price Index (RPI) and
RPIX are published as indicators for inflation by
the Treasury, but again only in terms of increase
in percentage over monthly and quarterly time intervals.
RPI prices have been fixed at 100% on January 13,
1987. Percentage figures are misleading when it is
not clear what value or year is used as the 100% reference.
The CPI has been introduced as part of the harmonisation
with EU standards. These charts paint a distinctly
different picture than Target Two Point Zero likes
to convey, with increases of
86% in all times of the CPI since 1987
82.3% excluding mortgage interest payments
73.7% excluding mortgage interest payments and indirect
68.9% excluding housing.
Housing has thus been responsible for 17.1% of inflation,
the difference between the first and the last index,
over this period of 17 years between 1987 and 2004.
1% per year adds up to 17%. And thats why it
is not sufficient to look at monthly and quarterly
increases in percentage terms.
Horses for Courses or Indicators for Indices has to
be the message here, so that short-term indicators
are embedded in long term contexts and true or real
inflation can be measured the way that people feel
it in their pockets.
Money supply and inflation affect people differently
at different stages in their life.
But nature, environment and climate are an on-going
process where regular short-term human activities
have cumulative effects long-term.
The same combination of short-term data with long-term
perspectives ought to be adopted by policy makers
and institutions collating and interpreting financial,
monetary and economic data.
Institutionally, maybe citizen experts
should join committee like in juries and NGOs.
Process-wise, institutions ought to be advised how
to interpret and publish data such that it is honest
GDP the Current Measure of Economic Growth
The Treasurys website writes: Gross Domestic
Product (GDP) is a measure of the total domestic economic
activity. It is the sum of all incomes earned by the
production of goods and services on UK economic territory,
wherever the earner of the income may reside. GDP
is equivalent to the value added to the economy by
this activity. Value added can be defined as income
less intermediate costs. Therefore growth in GDP reflects
both growth in the economy and price changes (inflation).
The icons of economic growth and price
stability are thus rather camouflaged:
GDP figures include the inflation of price changes
which grows naturally due to the inflationary nature
of the money supply
Inflation figures are monthly and quarterly increases
in percentages rather than longer term increases.
The chart above shows the data compiled by the Office
of National Statistics which the Treasury uses to
compile a GDP deflator: a much broader
price index than the CPI, RPI or RPIX (which only
measure consumer prices) as it reflects the prices
of all domestically produced goods and services in
the economy. Hence, the GDP deflator also includes
the prices of investment goods, government services
and exports, and subtracts the price of UK imports.
The wider coverage of the GDP deflator makes it more
appropriate for deflating public expenditure series.
In the Glossary, the GDP deflator is described as
a measure of domestically generated inflation.
It is meant to be a price index that includes data
from the financial economy of investment goods, the
public economy of government services and the international
economy of imports and exports.
This kind of fruit salad or levelling economic statistics
may suit those who want to advocate price stability
despite economic growth, for the growth inherent in
inflation has to be turned into growth of GDP while
inflation has to be made look to be small.
Such levelling is inappropriate, however, when analysing
the inflationary nature of the money supply as the
cause for environmentally detrimental activities.
In its section on how to use this measure, the Treasury
Cumulative inflation between one year
How much would a certain amount of money of one year
be worth in another.
Instead of measuring the rise of inflation between
one year and another, cumulative inflation
is supposed to be measured from the GDP that includes
many other activities over many different time frames.
In the pursuit of truth, justice and in defence of
our climate, the demonstration of accurate forecasts
validated by tests on historic data will be conclusive
evidence for better statistics and above all superior
Of course, our investigative analysis is biased: we
want to demonstrate the evidence for links between
the exponential growth of carbon emissions and the
exponential growth of profits and indebtedness.
Sovereignty & Seignorage the National Companion
of Contraction & Convergence, the Global Policy
Framework for Climate Change
Contraction & Convergence (C&C) is a global
framework for tackling climate change which has attained
great international acclaim and acceptance. See www.gci.org.uk Its
message is clear: the exponential growth of CO2 and
greenhouse gas emissions of the West has to contract
so that, together, countries can converge towards
global equity and sustainability.
At a meeting of the Forum for Stable Currencies at
the House of Lords on 07/09/05, Aubrey Meyer of the
Global Commons Institute presented C & C which
I matched with Sovereignty & Seignorage on www.monies.cc/s-s.htm
Since then I have begun to work on The Money Fuse
of the Climate Bomb as a book proposal for Pluto Press.
I have also been appointed Visiting Research Fellow
to the Computer, Communications and Mathematics Department
of the London Metropolitan University, where I have
launched the Global Monitoring Project (GMP) with
GMP will become an information system combining national
economic data with global data on climate change from
publicly available data bases.
As a mathematician, software designer and systems
analyst, I have also developed scale independent measuring
methods and a proprietary forecasting engine for any
Thus I can derive new measures of quality for science,
finance and economics which can not only be presented
in historical settings but also future scenarios.
Hence I trust that we can influence and change what
is currently happening to substantiate any legal undertakings.
Climate Change: The Legal and Economic Challenge
When asked what I want to achieve with legal action,
General education and awareness raising
The right political action for concerted efforts to
stop the trends of global warming.
I had in mind to stage a case with major PR effort
which requires money of course.
Since producing this document, it is clear that on
behalf of our climate and environment, we, the people,
can name and shame all the directors of the Bank of
England, of MFIs, OFCs, PNFCs and other key institutions
such as the Government, the FSA (Financial Services
Authority) and DMO (Debt Management Office).
But do they know what they are doing?
In political terms, the UK needs to become independent
of the US.
In institutional terms, the Bank of England, the Treasury
and the Government have to act in the interest of
the nation and the planet as a whole.
That means in policy terms, making best practice efforts
Publicly created money for purposes of the common
Public services such as health, education and the
MFIs, OFCs, PNFCs, the Financial Services Authority
and the Debt Management Office
Financial victims of institutions such as Inland Revenue
or Custom and Excise, causing bankruptcies or house
repossessionsWritten for Peter Roderick of www.climatelaw.org
after the seminar of the Environmental Law Foundation
on Climate Change: the Legal and Economic Challenge
on October 26th, 2005.
Copyright Sabine McNeill Page PAGE 6 of NUMPAGES
13 - 10-Nov-05 Sovereignty and Seignorage - Legal