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HOW TO CANCEL THIRD WORLD DEBT

From Goodbye America by Mike Rowbotham

Whenever Third World debt cancellation is discussed, it is automatically assumed that somebody, somewhere, has to suffer a loss. Either banks must cover the losses, taxes must be raised or Western governments must foot the bill.

In fact, Third World debts could be cancelled with little or no cost to anyone. Indeed, cancellation would be not only the simplest process imaginable, but to the general advantage of the world economy. All that is involved is a bit of creative accountancy - something at which the West has shown itself highly adept when this has suited its political purpose.

To appreciate this, it is essential to recall that the dominant form of money in the modem economy, bank credit, is entirely numerical. It is an abstract entity with no physical existence whatsoever, created in parallel with debt. Debt cancellation is therefore largely a matter of numerical accountancy. This is emphasised by the fact that only one factor prevents the immediate cancellation of all Third World debts - the accountancy rules of commercial banks.

Third World debt bonds form part of the assets of commercial banks, and all banks are obliged to maintain parity between their assets and liabilities (deposits).

If commercial banks cancel or write off Third World debt bonds, their total assets fall. Under the rules of banking, the banks are then obliged to restore their level of assets to the point where they equal their liabilities, usually by transferring an equivalent sum from their reserves. In other words, when debts are cancelled, normally banks suffer the loss.

There are two options for overcoming this accountancy blockage. They involve acknowledging that debt-cancellation is both desirable and possible, and adapting bank accountancy accordingly.

The Green Economy WG is hoping to arrange a weekend conference, with outside groups, on regional money and time banks, but it is too early to announce more.

In the last issue, a short piece, scanned from a smudgy photocopy, contained a number of misspellings due to this and not picked up by the computer or me. As a result, I have been asked by the author to reprint it – hence its reappearance in this issue.

Please note, if you send me material for publication as typed hard copy: I will rely largely on the OCR programme and the computer's spell checker to convert it to editable text, so clear originals are important!


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