Full reserve system

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The full reserve system is a hypothetical, more restrictive currency system in which there is no hidden book money or deposit money . In the full reserve system , banks can only grant loans in the amount of customer deposits plus central bank money. Central bank money is the money that commercial banks borrow from the central bank.

In contrast to today's standard partial reserve system or minimum reserve system , the commercial bank does not draw any additional book money / deposit money when lending to customers . As a result, the entire money supply in the full reserve system consists exclusively of central bank money . The advantages of the full reserve system lie in the decoupling of the money supply from the solvency of the banks and direct control of the money supply by the central bank. On the other hand, there is the disadvantage that in principle every additional loan must be approved by the central bank.

history

The Amsterdam Exchange Bank was a full reserve money house until 1781 when it issued money in excess of its money holdings and became a fractional reserve bank . Until then she kept her deposits and did not borrow them again. The Bank of England , which was created through a debt swap, only held a partial reserve and also lent money. The bank developed its role as lender of last resort through the South Sea Bubble . A partial reserve system was established throughout Europe during this period .

In an analysis of the global economic crisis from 1929 onwards, Irving Fisher and other US economists viewed commercial banks' deposit money creation, which is limited only by a minimum reserve , as problematic. In the case of a pronounced investor panic, the minimum reserve ratio alone proves to be insufficient to cushion a bank run . In addition, in the event of an economic downturn, the dynamic creation of deposit money is potentially offset by an equally dynamic deposit money contraction. This would intensify a recession and could cause a depression through debt deflation . In 1936 Fisher published his paper on 100% money. According to this approach, banks should only be allowed to grant loans with deposited central bank money. This has the advantage that the money supply does not fluctuate so strongly in the business cycle and thus the monetarist causes of the business cycle are contained. Bank runs would no longer be a danger, as banks are always 100% liquid. In addition, the state and private debt is lower, since the creation of money is no longer dependent on borrowing by the state and private individuals.

Theories

  • The Chicago Plan was a blueprint for a full reserve system. All balances that banks grant should have to be covered 100 percent with central bank money.
  • 100% money was a design by Irving Fisher based on the Chicago Plan. Fisher saw the minimum reserve system responsible for the Great Depression .
  • The economist Walter Eucken saw in such a system the monetary instability would be eliminated by private banks because the central bank would have control over the money supply. But the central bank would continue to be subject to state influences, which is why monetary policy would not be automatic. Eucken feared that inflation could occur if the central bank bought too many government bonds, but deflation could not be ruled out either, because there would be no demand from the private sector .

See also

literature

Individual evidence

  1. ↑ Jörg Guido Hülsmann : The ethics of money production. Ludwig von Mises Institute , 2008, ISBN 978-1-933550-09-1 .
  2. ↑ a b Birth of Hegemony: Crisis, Financial Revolution, and Emerging Global Networks. University of Chicago Press, 2012, ISBN 978-0-226-76760-4 .
  3. ↑ IMF Working Paper 12/202, Jaromir Benes and Michael Kumhof, The Chicago Plan Revisited , pp. 4–6
  4. ↑ a b Olaf Storbeck : IMF researchers want to radically restrict banking transactions. In: Handelsblatt . online, August 16, 2012.
  5. ↑ Principles of Economic Policy. UTB , 2004, ISBN 3-8252-1572-5 , p. 260.