Fractional reserve banking has existed throughout history, long before the creation of government currencies or central banks. Once monetary custodians realized that not all depositors would demand repayment simultaneously, the practice of lending out deposits in excess of reserves became commonplace. This raises the question of how a system of full reserves would operate in practice. Although authors have laid out plans for establishing a full-reserve banking system using gold or fiat currencies, the decentralized and digital nature of blockchain technology provides some inherent advantages in implementing a full-reserve system.
When Nixon officially ended the convertibility of the United States dollar into gold in October 1971, the dollar lost its last remaining tie to a commodity money. This ushered in the power of the central bank to create a near-unlimited amount of currency, since the dollar no longer faced redeemability into a scarce good. The danger of bank runs thus became virtually nonexistent, since more dollars could always be printed to meet outstanding withdrawals.
Fractional reserve banking is easy to operate in a system of pure fiat money with a lender of last resort in the form of a central bank, but fractional reserve banking was also common in the days of commodity money.
Continue reading: https://www.eurasiareview.com/31012022-could-blockchain-technology-help-end-fractional-reserve-banking-oped/
When Nixon officially ended the convertibility of the United States dollar into gold in October 1971, the dollar lost its last remaining tie to a commodity money. This ushered in the power of the central bank to create a near-unlimited amount of currency, since the dollar no longer faced redeemability into a scarce good. The danger of bank runs thus became virtually nonexistent, since more dollars could always be printed to meet outstanding withdrawals.
Fractional reserve banking is easy to operate in a system of pure fiat money with a lender of last resort in the form of a central bank, but fractional reserve banking was also common in the days of commodity money.
Continue reading: https://www.eurasiareview.com/31012022-could-blockchain-technology-help-end-fractional-reserve-banking-oped/
