Therefore, when the securities one party can call on demand are used to finance his broker's business, it is akin to the fractional-reserve banking
and can explain why there are runs on shadow banks.(18) Such activities of shadow banks were the source of instability for dealer banks in 2008, such as Bear Sterns, Merrill Lynch, and Lehman Brothers, contributing to the outbreak of the crisis (Claessens et al., 2012, pp.
After a brief introduction to the mechanism of cryptocurrency, this paper compares its development over the past several years to the development of fractional-reserve banking
under a regime of gold redeemability.
This is the fraudulent "magic" of fractional-reserve banking
under the Fed, which allows banks to issue several dollars in loans for every dollar actually held in reserve.
This is "fractional-reserve banking
," with gold reserves constituting less than 100 percent of the currency and checking accounts held by bank customers.
Machaj points to an alleged double standard in Block's argument since the latter is a severe critic of fractional-reserve banking
. If the private counterfeiter's title to his own "printed-in-the-basement" money is licit, how can Block criticize commercial banks for profiting from precisely the same kind of activity when they issue fiduciary media?
Wolf (2010) rightly recognizes that "it is wasteful to hold a 100 percent reserve in a bank, if depositors do not need their money almost all of the time." However, he does not draw the obvious conclusion that a currency board in gold is therefore less efficient than fractional-reserve banking
under a gold standard.
To the extent their activity replicates that of fractional-reserve banking
, they would need to be brought under the purview of the plan.
Moreover, it has kept interest rates at 0.25 percent, which paves the way for more money- creation through the fractional-reserve banking
In the 90's, after a partial rereading of Father Dempsey's book, I was prompted to learn more about Mises' understanding of the nature of fractional-reserve banking
and its contribution to the boom-and-bust cycle.
Banking is a distinct specialty of the author, and a criticism of fractional-reserve banking
figures prominently (chapters 10 and 11).
Economist Jesus Huerta de Soto places the blame on the institution of fractional-reserve banking
. This is the notion that depositors' money in use as cash may also be loaned out for speculative projects, then re-deposited.
To eliminate this element of discretion in the money circuit, fractional-reserve banking
should be replaced by 100 percent-reserve banking.