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Information about Full Reserve Banking

Full-reserve banking is a theoretically conceivable banking practice in which all deposits, banknotes, and notes in a financial system would be backed up by assets with a store of value.[1] This does not imply the existence of a government body (such as a central bank) that would convert currency to a more stable type of asset if requested to do so. A bank could engage in full reserve banking by issuing private currency backed by a commodity. It requires that the resources available to the banks issuing credit money and demand deposits would be sufficient to convert all currency at once if so required. It was a central component in Social Credit proposals.[2] It was also advocated by Irving Fisher and Milton Friedman.[3]

Reserve ratio

The reserve ratio of all banks operating in such a system would be 100%, making the deposit multiplier equal to one (1xM=M). The opposite of this system is fractional-reserve banking, in which the bank would hold only a fraction of all client deposits as reserves with the remainder used to supply loans.

A system in which all currency is backed by another asset and commercial banks are required to maintain a 100% cash reserve ratio has never been implemented in any actual economy. The closest system is that of a currency board, in which commercial banks are not required to maintain a 100% cash reserve, but all of the money in circulation is backed by another asset held by the central bank. This system is in use in Hong Kong where the Hong Kong dollar is backed by United States dollars deposited in the Exchange Fund of the currency board. Today, newly independent states such as Lithuania, Estonia and Bosnia have implemented currency board-like systems (local currencies are anchored to the euro). Argentina had a currency board-like system (anchored to the U.S. dollar) up until 2002, and many Caribbean states have used this kind of system up until recently.

Greater than 100% reserve

Some economies hold reserves greater than the value of the issued credit. One example is that of Jersey, which holds £1.10 in pounds sterling for each issued Jersey pound.

Criticism of 100% reserves banking

Pascal Salin, professor at the Université Paris-Dauphine and former Mont Pelerin Society president, opposes such regulation of banking. He says "a situation of perfect certainty doesn't exist"[4] even in a full-reserve banking system. He also states that "in a perfectly free banking system [...] any customer must be free to choose the kind of notes and the system of payments for services he prefers. [...] We cannot decide from outside that a 100-percent-reserve system is optimal, since optimality cannot be defined independent of the wants of the individual."[5]

Examples

Islamic banking

In theory, Islamic banking is often synonymous with full-reserve banking, with banks achieving a 100% reserve ratio;[6][7] however, in practice this is not always the case.

Digital gold

Since 1996, a form of private currency called digital gold currency has been in circulation. Many of these currency providers act like full-reserve "private banks" with a one to one ratio of the currency they issue and the hard asset, usually gold or silver, that they store as reserves. The most prominent examples are e-gold, e-Bullion and GoldMoney. Also available are physical gold exchangers and storage providers, such as BullionVault.

Terra

The Terra initiative by Bernard Lietaer will introduce a reference currency that is fully backed by a dozen or so of the most important commodities and services in the global market, thereby providing, for the first time since the gold-standard days, an international standard of value that is inflation-resistant."[8]

Monetary reform

A monetary reform for the information age on a full-reserve base is proposed by Joseph Huber and James Robertson.[9] The fruit of collaboration between a German academic and a British economic writer, they argue for one reform: the reappropriation by governments of the right of seigniorage now possessed by private banks. About 95% of new money currently issued takes the form of loans made by private banks to their customers. Huber and Robertson want to make this illegal. The creation of new money, both cash and non-cash, should be the exclusive prerogative of the central bank. The latter should determine how much it creates in the light of the objectives chosen for the country's monetary policy, and credit the new money to the government, who will then put it into circulation by spending it.[10]

See also

External links

References

1. ^ Full-reserve banking: Theory, fact and policy
2. ^ Social credit a distributist reform of the financial system by Oliver Heydorn
3. ^ Alexander Villacampa, A Basic Inquiry into the Nature and Effects of Monetary Economics pp. 35. [1].
4. ^ [2]
5. ^ [3]
6. ^ A MONETARY SYSTEM WITH 100-PER CENT RESERVE REQUIREMENT AND THE GOLD STANDARD: THEORY, FACT AND POLICY
7. ^ Siegfried, NA (April 2001). "Concepts of Paper Money in Islamic Legal Thought". Arab Law Quarterly 16 (4): 319-332. ISSN 0268-0556. Retrieved on October 16, 2006. 
8. ^ Terra TRC
9. ^ Creating New Money (PDF Format)
10. ^ "Social Currency" a website dedicated to the Huber and Robertson proposal
bank is a commercial or state institution that provides financial services , including issuing money in various forms, receiving deposits of money, lending money and processing transactions and the creating of credit.
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A deposit account is an account at a banking institution that allows money to be held on behalf of the account holder. Some banks charge a fee for this service, while others may pay the client interest on the funds deposited.
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banknote (often known as a bill or simply note) is a kind of negotiable instrument, a promissory note made by a bank payable to the bearer on demand, used as money, and under many jurisdictions is used as legal tender.
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A promissory note, also referred to as a note payable in accounting, is a contract detailing the terms of a promise by one party (the maker) to pay a sum of money to the other (the payee).
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asset is meant probable future economic benefits controlled by an entity as a result of past transactions or events and from which future economic benefits may be obtained.
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To act as a store of value, a commodity, a form of money, or financial capital must be able to be reliably saved, stored, and retrieved - and be predictably useful when it is so retrieved.
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Economic policy
Monetary policy
Central bank   Money supply
Fiscal policy
Spending   Deficit   Debt
Trade policy
Tariff   Trade agreement

Finance
Financial market
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currency is a unit of exchange, facilitating the transfer of goods and/or services. It is one form of money, where money is anything that serves as a medium of exchange, a store of value, and a standard of value. A currency is the dominant medium of exchange.
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A private currency is a currency issued by a private institution. It is often contrasted with fiat currency issued by governments.

In many countries, the issue of private paper currencies is severely restricted by law.
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Social Credit (often called Socred for short) is an economic ideology and a social movement which started in the early 1920s. Social Credit was originally an economic theory developed by Scottish engineer Major C. H. Douglas.
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Irving Fisher (February 27 1867 Saugerties, New York – April 29 1947, New York) was an American economist, health campaigner, and eugenicist, and one of the earliest American neoclassical economists and, although he was perhaps the first celebrity economist, his reputation
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Milton Friedman

Born July 31 1912(1912--)
Brooklyn, New York City
Died November 16 2006 (aged 94)
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The reserve requirement (or required reserve ratio) is a bank regulation that sets the minimum reserves each bank must hold to customer deposits and notes. These reserves are designed to satisfy withdrawal demands, and would normally be in the form of fiat currency stored in
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bank is a commercial or state institution that provides financial services , including issuing money in various forms, receiving deposits of money, lending money and processing transactions and the creating of credit.
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Money creation is the process by which the money supply of a country is increased. There are several ways that a government, in coordination with the country's commercial banks, can increase or decrease the money supply of a country.
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Fractional-reserve banking refers to the common banking practice of issuing more credit than the bank holds as reserves. Banks in modern economies typically loan their customers many times the sum of the credit reserves than they hold.
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A currency board is a monetary authority which is required to maintain an exchange rate with a foreign currency. This policy objective requires the conventional objectives of a central bank to be subordinated to the exchange rate target.
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Economic policy
Monetary policy
Central bank   Money supply
Fiscal policy
Spending   Deficit   Debt
Trade policy
Tariff   Trade agreement

Finance
Financial market
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Anthem
March of the Volunteers[1]



Capital None[2]
Largest district (population) Sha Tin District
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Hong Kong dollar
香港圓 (Chinese)

Banknotes Coins
ISO 4217 Code HKD
User(s) Hong Kong

Inflation 2.2%
Source [https://www.cia.
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United States dollar
dólar estadounidense (Spanish)
dólar amerikanu (Tetum)
dólar americano
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Anthem
"God Save the Queen"  (official)
"Ma Normandie" ("My Normandy")  (official for occasions when distinguishing anthem required)
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Pound sterling

New £20 Note All frequently used coins
ISO 4217 Code GBP
User(s) United Kingdom, Crown dependencies

Inflation 1.8% (UK CPI, August 2007), 4.1% (UK RPI), 3.4% (Guernsey 2006) 3.7% (Jersey 2006) 3.
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Jersey pound

Obverse of a £20 banknote Reverse of a £20 banknote
ISO 4217 Code none
User(s) Jersey

Inflation 5.3%
Source [https://www.cia.gov/library/publications/the-world-factbook/fields/2092.
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Pascal Salin (1939 - ) is a libertarian French economist, professor at the Université Paris-Dauphine and a specialist in public finance. He is a former president of the Mont Pelerin Society (1994 to 1996).
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The Mont Pelerin Society is an international organization composed of economists, intellectuals, business leaders, and others who favour classical liberalism; the society advocates free market economic policies and the political values of an open society.
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Islamic banking refers to a system of banking or banking activity that is consistent with Islamic law (Sharia) principles and guided by Islamic economics.
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A private currency is a currency issued by a private institution. It is often contrasted with fiat currency issued by governments.

In many countries, the issue of private paper currencies is severely restricted by law.
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Digital gold currency (or DGC) is a form of electronic money denominated in gold weight. The typical unit of account for such currency is the gold gram or the troy ounce, although other units such as the gold dinar are sometimes used.
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Private banks are banks that are not incorporated. A non-incorporated bank is owned by either an individual or a general partner(s) with limited partner(s). In any such case, the creditors can look to both the "entirety of the bank's assets" as well as the entirety of the
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