Quantitative Balancing and/or Sovereign Money ?

A field guide for reformers who want the State—not banks—to capture the seigniorage of M2

1. The same itch, two different scratches
   Every serious critic of the present banking regime agrees on the diagnosis: commercial banks have privatised the sovereign power to create money. The question is what to do about the stock of deposits—≈ €38 trillion in the four largest currency areas—that already sits on their balance sheets. Should we erase it from banks and move it to the public purse once and for all (Sovereign Money), or should we re-label it as a liability owed to the Treasury and charge a recurring fee for the privilege (Quantitative Balancing)?
2. Sovereign Money in one paragraph
   Sovereign Money reforms enact a legal flip-over: on day T, every sight, savings and time deposit in the banking system is re-defined as legal-tender digital cash issued by the central bank. Customers notice nothing—their IBAN balance still reads €5 000—but the bank’s balance sheet shrinks: the €5 000 liability to the customer is replaced by a €5 000 claim on the central bank, and the central bank simultaneously books the same amount as perpetual equity of the Treasury. Banks become narrow intermediaries: they can still lend, but only existing money (time deposits, bonds, equity, or central-bank refinancing). The money multiplier falls to one; the Treasury pockets the entire seigniorage windfall in a single stroke.
3. Quantitative Balancing in one paragraph
   Quantitative Balancing (QB), laid out in the linked paper by Marco Saba, does not outlaw private money creation. Instead, it keeps the deposit on the bank’s books but reclassifies it as “Liability to the State Treasury”. The bank must henceforth pay an annual seigniorage fee—say 0.3 % of the stock—to the Treasury for the right to have created the money. Accounting statements become transparent (the fee is booked as an operating expense), but fractional-reserve banking continues. Systemic-risk simulations show a modest but real 12–18 bp drop in joint default probability, while bank profitability falls only 2–4 bp. The reform can be piloted in a regulatory sandbox and needs nothing more exotic than an accounting standard amendment plus a Treasury regulation.
4. Head-to-head: the five decisive questions

TABLE

Question                                       Sovereign Money            Quantitative Balancing

1. Treasury capture of €38 trn 100 % at once (equity transfer) 0 % up-front; perpetual fee stream

2. Bank money creation abolished? ✅ Yes (100 % reserve)         ❌ No

3. Risk of bank-run after reform     Zero (all deposits = CB money) Unchanged

4. Legal upheaval                             High (new statutes)                 Medium (accounting + treasury rule)

5. Political path                                     Big-bang or referendum         Phased sandbox / IFRS tweak

5. Hybrid scenarios: “both-and” instead of “either-or”
   Nothing prevents a jurisdiction from sequencing the two reforms.
   • Phase 1 (QB): immediate transparency and a 0.3 % seigniorage stream softens the banking lobby’s opposition, buys time to recapitalise institutions, and lets regulators test operational glitches.
   • Phase 2 (Sovereign Money): once the Treasury has built up a capital buffer from QB fees, the same deposits are finally converted into sovereign digital cash. The accounting flip-over is now affordable because banks have had years to replace lost funding with long-term debt or equity.
   This path keeps the political cost curve convex rather than cliff-edged.
6. The Islamic-finance wildcard
   Islamic jurists reject interest (riba) but are agnostic about who creates money. Both systems can be rendered riba-free:
   • Sovereign Money by issuing zero-interest CBDC and charging banks transparent service fees.
   • QB by replacing the interest margin with a pre-agreed monetage fee (a fixed percentage of the loan principal).
   The QB paper shows that a 10 % monetage fee replicates the profit of a 7 % interest loan—without compound interest—making the hybrid package saleable in Muslim-majority countries that are often wary of sweeping secular reforms.
7. Bottom line for policymakers
   If your political capital is abundant and your banking system well-capitalised, Sovereign Money is the cleanest solution: the State finally collects the whole seigniorage stock and bank runs become impossible.
   If you need a stepping-stone—or if your banks’ balance sheets are already fragile—Quantitative Balancing gives you 80 % of the transparency and 30 % of the seigniorage now, with the option of full nationalisation later.
   In other words: QB is the reversible pilot; Sovereign Money is the irrevocable flight. Choose the cockpit that matches your runway length.