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November 24, 2010

Islamic banking: Usury-free week celebrated

Eleanor Grant

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The Eastern Ontario town of Tamworth was the site of this year's "Usuryfree Week," a forum for raising citizen awareness about how the present system of money, banking, and credit works (or frequently doesn't work), and generating alternatives for local communities.

Locally based economic alternatives revolve around building grassroots connections, buying from local producers, and developing a local community currency.

Under this system, “barter dollars” can be earned and spent locally in parallel with the national currency, which is still used for large items that not yet available with the local currency. It’s a movement that’s still in its infancy, first launched in 1985 as the Local Exchange Trading System (LETS).

The forum’s keynote speaker was 87-year-old Paul Hellyer, a cabinet minister in the Pearson and Trudeau governments.

Hellyer used charts and graphs to illustrate vividly how the national debt has skyrocketed since his time, largely because of compound interest owed to the private banks. He explained how the Bank of Canada was formed during the Great Depression and was made a publicly owned institution, unlike the U.S. Federal Reserve, which is privately owned.

In 1940 the Bank of Canada started providing interest-free money to the government in the form of low-interest bonds, whose earnings were then returned to the public purse as dividends.

The government was able to use this public capital to finance the war effort, great postwar infrastructure projects like the St. Lawrence Seaway, and the Pearson-era family allowance, old age pension, and Medicare social programs.

The national debt remained stable at around $18 billion. Who could imagine being able to run a complex modern nation with such a small amount of debt today?

It all went wrong, according to Hellyer, when the ideas of economist Milton Friedman were introduced in 1974.

Three years earlier, Richard Nixon had taken the U.S. off the gold standard, which resulted in the dollar itself becoming the reserve holding of all nations’ banking systems.

Now, the banks started being allowed to reduce their reserve holdings drastically. In other words, banks were now allowed to create vast amounts of new “money” by issuing loans at interest without having the cash reserves to back their paper value.

Hellyer calls this “funny money,” humorously borrowing a term used by critics of the old “social credit” movement.

At the same time, in 1974, governments started to raise funds through private banks instead of from the Bank of Canada, which now plays only a regulatory role. Enter the age of spiraling public debt at compound interest, frequent recessions, Third World impoverishment, and global financial uncertainty.

The audience of 60 people burst into applause when the former defence minister concluded: “We don’t need another war to bail us out, unless it’s a war on poverty, homelessness, inadequate health care, and climate change.”

Tom J. Kennedy, founder of The UsuryFree Network spoke at “Toward A Peaceful Economy,” a free forum in Kitchener sponsored by the Nonviolence Festival, a local humanist group.

Kennedy is committed to a biblical view of the prohibition of interest, and he spoke highly of the Islamic banking movement. He pointed out in his talk that all the world’s holy books condemn the taking of interest. On his blog “The Usuryfree Eye Opener” he extols the Christian Middle Ages in Europe.

One very interesting link on his blog takes the reader to an article by Ellen Brown, author of Web of Debt. She argues that U.S. eagerness to impose sanctions on Iran may have little to do with nuclear weapons but instead with the threat that Iran may pose to the Western banking system. She calls compound interest a “Financial Weapon of Mass Destruction.”

At the end of the forum Kennedy presented the organizers with the “Winged Lion” award, a historic symbol of usury-free money, which his group in Tamworth awards each year to citizens and businesses that take steps to live usury free.

I came away from the forum overwhelmed by a sense of how ignorant most of us are of things that are vitally important.

First of all, most of us know almost nothing about the monetary system: how money is created, and why there are astronomical amounts of “money” floating in the financial stratosphere while people and businesses on the ground are perpetually short of cash.

Second, how many of us know how Christian, Islamic or Judaic banking systems ran sophisticated economies without reliance on interest? It would be extremely helpful in these times, if our religious communities spent a lot more time discussing these topics, and bringing them up at interfaith forums.

Other measures mentioned at the forum working groups were interest-free credit unions, micro-credit as practiced by the Grameen bank, local buying clubs, community shared agriculture, and neighbours teaching neighbours old and new skills. Will we see old-fashioned barn-raisings, or will we put up solar panels instead?

All of these ideas will require learning because we still lack most of the necessary knowledge to build small parallel economies.

But if Paul Hellyer and other prophets are right, and the Big Financiers are bent on torpedoing the global monetary ship, then getting to work now to build sturdy lifeboats might be a darned good idea.

Eleanor Grant is a freelance writer based in Waterloo, Ontario.

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