The role of fractional-reserve banking and financial intermediation in the money supply process: Keynes and the Austrians

1998 ◽  
Vol 1 (3) ◽  
pp. 29-40 ◽  
Author(s):  
John P. Cochran ◽  
Steven T. Call
Keyword(s):  
Money Supply ◽  
Financial Intermediation ◽  
Fractional Reserve Banking ◽  
Fractional Reserve ◽  
Reserve Banking

scholarly journals Promoting Islamic Private Equity Fund As An Ideal Financial Intermediary Institution

IKONOMIKA ◽  
2017 ◽  
Vol 2 (2) ◽  
pp. 112
Author(s):  
Nashr Akbar ◽  
Muhamad Haeikaly
Keyword(s):  
Private Equity ◽  
Financial Intermediation ◽  
Fractional Reserve Banking ◽  
Equity Fund ◽  
Financial Intermediary ◽  
Private Equity Fund ◽  
Fractional Reserve ◽  
Bank Institution ◽  
Reserve Banking ◽  
Risk Taker

The existence of financial intermediation institution is quite necessary to support the economic activity. It serves both surplus unit and deficit unit to meet their wants whereby the former wants to invest his money in the lack of skill, while the latter wants to develop their businesses but does not have adequate capital. Bank institution is the most common institution serving the people’s need of financial intermediation. However, bank has several weaknesses that may harm and hamper the economic development. This paper aims to explore the weaknesses of banks as financial intermediary institutions and then promote Islamic Private Equity Fund as alternative. The result showed that the weaknesses of banks are: 1) fractional reserve banking, 2) fiat money, 3) debt-based investment, 4) risk averse. Furthermore, the study also found that Islamic Private Equity Fund can serve as an ideal financial intermediary institution due to some strengths: 1) no fractional reserve banking, 2) equity-based investment and 3) risk taker

scholarly journals Considerations on Fractional Reserve Banking and Free-Banking

2021 ◽  
pp. 203-215
Author(s):  
Rafael Hotz
Keyword(s):  
Money Supply ◽  
Current Account ◽  
Banking System ◽  
Fractional Reserve Banking ◽  
Fractional Reserve ◽  
Time Deposits ◽  
Reserve Banking ◽  
Monetary Supply ◽  
Current Account Balances ◽  
Bank Notes

In this article, our goal is to examine a controversy very dear to Austrian economists: that of the legitimacy of the fractional reserve banking system, defined as a system in which the bankers keep in their vaults a quantity of money (narrowly defined) lower than the quantity of cash deposits granted to their clients. In the Austrian vision, the monetary supply, broadly defined (Mises, 1971), consists of money properly said, plus monetary substitutes (bank notes, cash deposits), plus credit-money, this one corresponding to any future right to a monetary sum (time deposits, promissory notes, pre-fixed derivatives). In a narrow sense, money supply consists in money properly said (fiat-money or commodity money). We must, however, clarify some aspects of the money supply. Monetary substitutes have their origin in the monetary certificates. Monetary certificates, in their turn, are tools utilized to confer information about the medium of exchange. For instance, precious metal coins mintage confers information about the metal’s purity and about the weight of the coin; bank notes and current account balances confer information about the amount, overseer and proprietor of the deposited money. So, money certificates can change the agents’ valuations concerning the particular good in question, even being able of independent valuation. Monetary certificates can be physically connected to the medium of exchange or separated from it. In the case of physically connected monetary certificates, we have what we normally call monetary substitutes. Monetary substitutes can, due to their nature, work as property titles to the very medium of exchange. Contemporaneously, monetary substitutes usually can be identified with cash deposits (current account balances) and paper checks, provided that the use of bank notes is increasingly rare. Having made those clarifications concerning monetary substitutes, we will, following Mises (1971, p. 135), call fiduciary media the quantity of monetary substitutes that exceeds the quantity of money properly said. However, before proceeding with our Investigation about the consequences of the legalization of the production of fake monetary substitutes (fiduciary media), we must explain what would be a fake monetary substitute and the nature of this counterfeiting. We must, therefore, start our argumentation establishing some differences about the nature of loan and deposit contracts [x].

scholarly journals A Digital Currency Architecture for Privacy and Owner-Custodianship

2021 ◽  
Vol 13 (5) ◽  
pp. 130
Author(s):  
Geoffrey Goodell ◽  
Hazem Danny Al-Nakib ◽  
Paolo Tasca
Keyword(s):  
Systemic Risk ◽  
Banking System ◽  
Developed Countries ◽  
Fractional Reserve Banking ◽  
Point Of Sale ◽  
Digital Currency ◽  
Fractional Reserve ◽  
Banking Relationships ◽  
Reserve Banking ◽  
Payment Mechanisms

In recent years, electronic retail payment mechanisms, especially e-commerce and card payments at the point of sale, have increasingly replaced cash in many developed countries. As a result, societies are losing a critical public retail payment option, and retail consumers are losing important rights associated with using cash. To address this concern, we propose an approach to digital currency that would allow people without banking relationships to transact electronically and privately, including both e-commerce purchases and point-of-sale purchases that are required to be cashless. Our proposal introduces a government-backed, privately-operated digital currency infrastructure to ensure that every transaction is registered by a bank or money services business, and it relies upon non-custodial wallets backed by privacy-enhancing technology, such as blind signatures or zero-knowledge proofs, to ensure that transaction counterparties are not revealed. Our approach to digital currency can also facilitate more efficient and transparent clearing, settlement, and management of systemic risk. We argue that our system can restore and preserve the salient features of cash, including privacy, owner-custodianship, fungibility, and accessibility, while also preserving fractional reserve banking and the existing two-tiered banking system. We also show that it is possible to introduce regulation of digital currency transactions involving non-custodial wallets that unconditionally protect the privacy of end-users.

Rozeff on free banking: a critique

2018 ◽  
Vol 34 (2) ◽  
pp. 123-136
Author(s):  
Laura Davidson ◽  
Walter E. Block
Keyword(s):  
Design Methodology ◽  
Free Banking ◽  
Fractional Reserve Banking ◽  
Content Type ◽  
Monetary System ◽  
Fractional Reserve ◽  
Reserve Banking

Purpose The purpose of this paper is to correct Rozeff (2010). He contends that fractional-reserve banking is legitimate and efficacious. The authors demonstrate that it is not. Design/methodology/approach The design of this paper is to quote widely from Rozeff (2010) and then to expose his errors of analysis. Findings The authors demonstrate that fractional-reserve banking is neither legitimate nor efficacious. Originality/value Money is the lifeblood of the economy. If so, then banking is the marrow of the economy, since it is from that sector that money arises in the first place. It is crucially important, then, that the monetary system be based on sound principles. Fractional-reserve banking is a violation of these sound principles. Therefore, it is valuable to demonstrate that this is indeed the case.

Banks, private money creation, and regulatory reform

2018 ◽  
Vol 26 (1) ◽  
pp. 20-34
Author(s):  
Gerry Cross
Keyword(s):  
Regulatory Reform ◽  
Recent Criticism ◽  
Multiple Use ◽  
Fractional Reserve Banking ◽  
Content Type ◽  
Fractional Reserve ◽  
Private Money ◽  
Money Creation ◽  
Reserve Banking ◽  
New Framework

Purpose This paper aims to consider recent arguments that post-crisis regulatory reform has misunderstood the nature of banks’ activities. These arguments suggest that a bank’s role is not that of intermediation between savers and borrowers but the systemically riskier one of private money creation. Design/methodology/approach The paper assesses whether banks’ activities are best understood as private money creation rather than intermediation. It considers the argument that regulatory reform has not gone far enough to prevent a recurrence of future credit spirals ending in financial crises. Findings This paper analyses banks’ activities and finds that it is incorrect to consider that they engage in relatively unfettered money creation. While fractional reserve banking does create flows of money through the economy, these flows are tethered to banks’ funding requirements. Multiple use of that money, rather than representing an ill-understood risk, simply reflects the nature of maturity transformation. This has not been missed in designing the post-crisis regulatory framework. The revised framework contains many features that are not fully recognised by proponents of the money creation critique and goes significantly further than they allow. Once completed, it will address many of the concerns they raise. They are right to call for further consideration of whether the countercyclical features of the new framework are sufficiently developed. Originality/value The paper provides an early detailed response to recent criticism of the post-crisis regulatory reform programme coming from a money creation perspective of banks’ role in the economy.

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