scholarly journals The Wisselbank and Amsterdam Price Volatility: A fractal test of the Austrian fractional-reserve banking hypothesis

2021 ◽  
pp. 13-42
Author(s):  
Christopher P. Guzelian ◽  
Robert F. Mulligan
Keyword(s):  
Commodity Prices ◽  
Price Volatility ◽  
Unexpected Result ◽  
Fractional Reserve Banking ◽  
Reserve Requirements ◽  
Fractional Reserve ◽  
Palabras Clave ◽  
Commercial Paper ◽  
Reserve Banking ◽  
Bill Of Exchange

Using 1708-1788 historical data, we test the Austrian hypothesis that fractional-reserve banking destabilizes commodity prices, complicating eco­ nomic calculation and entrepreneurial planning, and contributes to boom-bust cycles. The Bank of Amsterdam («Wisselbank», 1609-1819) maintained high reserve requirements until the Fourth Anglo-Dutch War (1780-1784), when its reserve ratio plummeted from nearly 100% in 1778 to around 20% by 1788. We compare price volatilities for 1722-1779 and 1780-1788 using fractal Hurst exponents. For all commodity prices tested, fractal volatility was higher during the lower fractional reserve period, except for rye, wheat, and Hamburg Bills of Exchange. Bill of Exchange stability was likely attributable to Hamburg transport ships’ ability to evade British incursion and to the Wisselbank’s legal monopsony in the secondary commercial paper market. However, rye and wheat prices — directly indicative of bread prices — generally (and contrary to Austrian theory) stabilized even though British blockades significantly re­ duced Dutch bread grain imports. We attribute this unexpected result primarily to emergency wartime provision by the Amsterdam municipal granary. The Wisselbank experience may confirm, or at least does not clearly falsify, the economic relevance of the Austrian Fractional-Reserve Banking Hypothesis. Keywords: Fractional reserve banking, monetary expansion, price stability, equilibrium. JEL Codes: E42, E44, N13, N23, N83. Resumen: Analizando los datos históricos correspondientes al Banco de Áms­ terdam de 1708 a 1788 concluimos que la evidencia empírica confirma (o al menos no refuta) la hipótesis austriaca sobre los negativos efectos de la banca con reserve fraccionaria. Palabras clave: Banca con reserva fraccionaria, expansión monetaria, estabili­ dad de precios, equilibrio. Clasificación JEL: E42, E44, N13, N23, N83.

scholarly journals Intervención coactiva en el mercado: procesos, modalidades y efectos

2021 ◽  
pp. 165-197
Author(s):  
Jorge Bueso Merino
Keyword(s):  
Key Words ◽  
Jel Classification ◽  
Market Process ◽  
Fractional Reserve Banking ◽  
Fractional Reserve ◽  
Palabras Clave ◽  
Reserve Banking

Developing Böhm-Bawerk’s (1914) Macht oder ökonomisches Ge-setz, we characterize the different intervention modalities as coercive «fixing» of prices, goods (quantities or modes of performing) or persons, also with their effects. Given that the subjective but real forces underlying market processes respond with effects which are opposite to those pursued, the «intervener» or controller would be induced to an in crescendo «fixing» of more and more as-pects of reality. We also show fractional reserve (banking) as another kind of intervention, since it produces or induces the same effects, including a call to implement monopolistic schemes. Key words: Market Process, Böhm-Bawerk, Intervention, Rothbard, Fractional Reserve JEL Classification: B41, B53, D42, D43, D45, L43, L51, G01 Resumen: En desarrollo del trabajo póstumo de Böhm-Bawerk (1914) Macht oder ökonomisches Gesetz, se caracterizan los diferentes tipos de intervención en tanto que «fijación» coactiva de precios, bienes (cantidades o modos de hacer) o personas, junto con sus efectos correspondientes. Como las fuerzas subjetivas pero reales que mueven los procesos de mercado originan efectos contrarios a los eventualmente deseados, el«interventor» se ve inducido a fijar sucesivamente cada vez más aspectos de la realidad. También se muestra a la reserva fraccionaria como otra modalidad más, que produce e induce los mismos efectos, incluido la llamada a implementar esquemas monopolísticos Palabras clave: Proceso de Mercado, Böhm-Bawerk, Intervención, Rothbard, Reserva Fraccionaria Clasificación JEL: B41, B53, D42, D43, D45, L43, L51, G01

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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