Economic growth is impossible without business loans – analyst
21 October 11:02
Whether economic growth awaits Ukraine, what conditions are needed for it, and why the NBU is not doing it today, as well as how to remedy the situation – these are the questions that economic analyst Pavlo Sebastianovych discussed in an interview with Kommersant Ukrainian YouTube channel.
The National Bank of Ukraine plans to reduce inflation to 10% by the end of next year. But every year, the NBU plans for inflation to be 6-8%, while in fact it is 12-15%. That is, it does not achieve its goals, even though it promises to. The main reason for inflation, according to the expert, is that the NBU does not understand where money comes from in the economy. And money appears at the moment of business lending. As soon as a business receives a loan, new money appears in the economy.
“The paradox is that society and economists believe that a bank is an intermediary: someone puts money on a deposit, and the bank lends it out as a loan. This is not true. There is also the theory of partial reserves, which is that the bank’s reserves are stored somewhere, and it is through the interbank market that money flows. Supposedly, a bank has 10% of reserves and issues 100% of loans – then the question arises: where does the other 90% come from? But the truth is that money is created when a bank issues a loan. An entrepreneur comes with a business plan and an obligation to repay the money, and the bank accepts it as a “deposit.” In other words, the business idea is actually deposited with the bank as collateral, and the bank issues a “check” – it credits the money to an account that can be used to make payments. If cash is needed, the bank orders it,” explains Pavlo Sebastianovych.
But the main thing is that the more loans are issued, the more the economy grows. This is what postwar Germany, Japan, and other countries did. In China, for example, there are more than 800 banks and 5 million branches – one for every 200 people. And they all issue loans, i.e. create money. Today, China has 42 trillion dollars in circulation, more than the US and the EU combined. And China’s economy is growing.
Instead, the analyst emphasizes that the NBU should make sure that the money is directed to production. If the funds are used for mortgages, the cost of housing will rise, and the real estate bubble will begin to inflate. Consumer loans also lead to inflation and rising prices. And if the money is spent on securities, it’s all over. The stock market bubble is inflating and the banking sector is overheating. According to the expert, this is exactly what the NBU is doing now.
“Today, all the money of the economy is collected in certificates of deposit, which banks buy from the National Bank, and the latter buys from the Ministry of Finance in the form of government bonds. That is, having the opportunity to make money on securities and certificates of deposit, banks have stopped lending to businesses. This means that there will be no economic growth in Ukraine,” the expert emphasizes.
According to Pavlo Sebastianovych, the main condition for economic growth is affordable lending, especially for small businesses. An individual entrepreneur should not have to submit as many documents as a large company. Small loans to individual entrepreneurs should be issued instantly – literally on the basis of a passport. This is how the economy should work.
Instead, the opposite is true in Ukraine: the number of banks is rapidly declining.
