Reply to Fontana and Sawyer

Fontana and Sawyer rebut my critique (Etzrodt, 2023) of the ‘Positive Money’ (PM) reform proposed by Jackson and Dyson (2012). Their key argument centres on the shadow banking sector (SBS), asserting that PM would restrict credit supply, prompting the SBS to fill the gap by creating near-moneys—a claim adjusted from their earlier work (2016). I agree with them that the SBS influences money supply in two ways: (i) creating near-moneys independently and (ii) amplifying leverage of existing money via securitization. While Fontana and Sawyer emphasize the former, I stress the latter, citing its role in the 2008 Lehman Brothers crisis. This divergence leads to opposing policy conclusions: Fontana and Sawyer oppose banking reforms that would reduce the commercial banks’ risk-taking behaviour, fearing SBS substitution, whereas I support reform but reject PM as ineffective. Fontana and Sawyer’s stance inherently protects the status quo.