In short: the money you live on is always safe, because it is public money in a public account. The money banks lend is openly at risk, and paid for it. A bank can fail without anyone losing what they need to live, so no bank ever needs rescuing.
The problem with guaranteeing private money
Most money today is created by banks when they lend. To keep people from running on banks, the public guarantees deposits up to a limit, and in a crisis it often rescues the banks themselves. That arrangement works most of the time. Its cost is that a bank keeps the profit when its risks pay off, and the public carries the loss when they do not.
The framework already holds that no private issuer receives a public guarantee (who creates money). Taken alone, that rule would end deposit insurance, and without it any rumor could start a run. So the rule needs a companion: a place for the money people live on that is never at risk.
Every person holds a public money account
Every person has a free account holding public money, issued by the independent public issuer. Floor credits are paid into it each month. Wages and other income can be paid into it too. It cannot fail, because it holds the public’s own money, not a loan to anyone.
The account follows the rules that protect the floor: no one may seize the floor in it, no conditions may be attached to what it buys, and it may never be used to watch what people spend (writing circulation into the rules). Payments between accounts are free.
Payment money is fully backed
Private firms may still offer payment accounts and cards, and many people will prefer them for their features. But money held for payments, anywhere, must be fully backed by public money. A payment provider can fail without losing a cent of its customers’ money, because that money was never lent out.
Banks lend from money openly at risk
Banks keep lending, because judging projects is what they do well. They fund that lending from accounts that are clearly investments: savers who choose them earn more, and they know their money is lent out and can be lost. Bank credit stays steered toward building, producing, and starting ventures, and away from buying existing scarce goods.
When a bank’s loans go bad, the people who chose to fund its lending take the loss, in an order set in advance. The money people live on is never touched.
Why no bailouts are needed
Bailouts happen because a bank’s failure would freeze the money people use to pay rent and wages. When that money is in public accounts and fully backed payment accounts, a failing bank threatens only its own investors. It can be wound down in an orderly way, its good loans sold, its investors paid in their set order. The pressure to rescue it is gone, and so is the reward for taking risks the public would have to cover.
In the transition
- Public money accounts open as floor credits begin. The floor needs somewhere to be paid, and the first stage of the floor brings the first accounts.
- Payment providers move to full backing, on a published schedule.
- Deposit insurance stays until public accounts are universal. No one’s living money may be at risk at any point in the change.
- Then deposit insurance winds down, replaced by the public account and fully backed payment money, while bank lending moves to clearly labeled investment accounts.
Who resists, who backs it
| Change | Resists | Backs |
|---|---|---|
| Public money accounts | banks that earn from holding everyday deposits cheaply | people without good bank access, anyone who has paid overdraft fees, the floor’s payer |
| Fully backed payment money | payment firms that lend out customer balances | customers, regulators tired of rescues |
| Ending the guarantee of private lending | banks large enough to expect rescue | taxpayers, smaller banks that compete against implicit guarantees |
What stays open
- How quickly bank lending can move to investment accounts without a sharp fall in credit for building.
- Whether interest is paid on public money accounts, and how that interacts with the stable floor-price target.
- How to keep the public account private by design, so the payer can see that credits arrived but no one can see what they bought.