Iceland is considering a revolutionary monetary proposal – removing the power of commercial banks to create money and handing it to the central bank. The proposal, put forward by a lawmaker from the ruling coalition, is a response to the 2008 banking collapse when Iceland’s three biggest banks sank and the country teetered on the brink of bankruptcy. A key part of the proposal involves the central bank creating money to make up for lost bank lending.

The central bank would become the only creator of money in an economy. As it stands, central banks create only a tiny fraction of money, with the rest being created by commercial banks when they offer loans. The proposal seeks to protect the economy from collapsing under the burden of new debt. It also aims to prevent asset bubbles they say are caused by current banking systems.

The proposal has its critics. Opponents argue it would be a dangerous step, putting politicians too close to central bank policy. The fear is that politicians could create too much money, leading to hyperinflation. The proposal is in the early stages of being drafted and could eventually be put to a vote in Iceland’s parliament.

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