The crypto-enthusiasts are right about one thing

The title above is an obvious clickbait, but also kind of true. Whilst my criticism of cryptocurrencies is comprehensive, I must give it up to the crypto-enthusiasts that they identified (a little late if compared to socialists worldwide) that the over-creation of money through excessive debts by commercial banks is a huge problem that contributes to inflation. We must, however, go further in our analysis on where these debts go.

Far more than the common person, loans and debt are created to service those who hold capital. Big corporations and the ultra-wealthy use debt to finance their whims and fancies. A very recent example can be shown in the case of Genting Hong Kong who was given unsecured loans up to RM 2.5 billion by, amongst others, Maybank, CIMB and RHB Bank. Now that the company has filed to wind up its business, the state of these loans remains unsure.

Another egregious example is how billionaires, especially within real estate, use leverage or the “Buy, Borrow, Die” scheme. This is when they possess an appreciating asset initially, usually buildings, and take loans against it as a collateral. These loans will finance their livelihood without paying taxes. They repeat this continually until they die, at which point the asset transfers to their heirs, who get to sidestep any taxes on capital gains, sell the property, repay creditors and still have money enough to start a new Buy, Borrow, Die scheme. This perpetually sustains debt for long periods of time, sometimes even resulting in lapses due to sudden depreciation.

In fact, we can point to excessive profiteering as another reason why there is a need for so many banks in the first place. Housing and vehicle prices have skyrocketed far beyond the means of the common person, especially in the third world. In Malaysia, affordable housing is defined as costing below RM 300,000 with the median monthly salary around RM 2000 to RM 2500. There is an obvious and absurd gulf between the two, requiring taking a loan to procure a house. Even renting these days in a suitable location cost above a thousand monthly. Cars are similar, with the cheapest options still being more than RM 32,000. Cars cannot even be deemed optional in Malaysia with the state of public transportation lacking connectivity especially outside of big cities.

Property and car prices being out of the affordability of the common person is compounded by low wages, which has plagued Malaysia as well. Third-world nations particularly are stuck in the trap of appealing to the global market as they are forced to minimize labour costs to reduce prices and attract interest from multinational companies looking for vendors. The ravine between wages and prices force people to take out loans for necessary expenditure, thus creating debt. Commercial banks being predatory as they are capitalist keep debtors on the hook for as long as possible through their interest rates designed for longevity and cross-selling other debt-creating products to the consumer. The goal, of course, in a commercial bank is to make money.

All of the above shows clearly that the problem is the capitalist system, both locally and globally. The commercial banking sector, just as predatory as other private firms if not more, are in the business of creating debt to service the only characteristic of private capital i.e constant expansion. Capital is amoral, it only seeks to grow. That growth is facilitated through many methods, including somewhat justified ones such as creation of tangible products for use and unjustified ones such as speculation. Loans also expand capital through facilitating transactions needed for business and ownership of necessities such as the aforementioned housing. In this sense, the creation of money in this way seems necessary.

However, there is a disproportionate funneling of capital such that the end-result of the investment that is loan-creation does not fully realise its value. For instance, low-interest, high-risk loans for the wealthy and the aforementioned “Buy, Borrow, Die” scheme only result in the expropriation of capital to wealthy billionaires. With the loans, value is created through underpaid workers and stolen by the capitalists to keep for themselves. In this sense, the economy doesn’t grow as much as the initial investment would justify, thus resulting in greater inflation. This disproportionate realization of value is the largest reason why fiat money loses value through loan creation, and it is not due to the creation of loans per se but the inefficient utilization of them.

The solution to this, the crypto-enthusiasts would love to laud, is to abandon fiat money for cryptocurrencies that can only be created through mining. I, however, disagree for many reasons, but for this case, mainly as this only results in a greater dictatorship of capital, where the wealthy ultimately have greater control over the masses. A better, more sustainable solution, is to do away with commercial banking entirely for a socialized banking system.

Until we achieve the moneyless, classless society as envisioned by Marx, money would still be needed by the masses to achieve important personal and societal goals. Poor single mothers often need money to start small businesses to sustain their family’s livelihood. Orang Asli communities need money to establish small, local, renewable energy projects to power their settlements. Nationally, money would be needed to fund important social projects such as train and expanding key sectors such as agriculture to increase national resilience. Money used for these reasons will realise their value much better as they will expand the economy, allow social mobility of marginalized individuals and decrease associated costs such as healthcare.

Commercial banks do not fund these activities due to the lack of potential in profit-making. So, the only response should be to eventually abolish commercial banking to replace with a social banking system that is controlled by the people. Of course, the current examples of cooperative banks such as Bank Rakyat seem to work in a similarly predatory manner. As with many GLCs and GLICs in Malaysia, they only have the veneer of helping the people but in actuality behave as private entities, expropriating capital from the masses to the elite. There needs to be a complete overhaul of the system.

This overhaul cannot happen in a silo. A revolution in the banking sector can only happen through a political revolution away from constant expansion of capital towards a socialist mode of production. The economy needs to be structured in a manner so as to be controlled by the masses directly. This can be through the People’s Council structure I have proposed earlier. Banking should be a national project, controlled by the people, not a method by which private owners of capital can make more money. Moreover, debt should not be a prolonged necessity for the masses. In that sense, housing and transportation need to be socialized too, through council houses and improved public transportation. This will decrease the need to live in debt in the first place.

This may be a challenging future state to imagine, however if we envision it as an end-state, we can start to move towards it. We can begin to recognize the worth in organizing the masses into functional units to demand for fairer loan terms between the wealthy and the poor. We can start pushing for laws that protect ordinary Malaysians from predatory practices done by commercial banks. We can push for a reduction by banks in investment into coal power plants and towards better, more people-centric projects. All in eventually realizing the ultimate goal of a socialized banking sector. Therein is the socialist outlook on banking.

Arveent Kathirtchelvan
Chief of Socialist Youth,
Parti Sosialis Malaysia

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