Under a 100-percent-reserve standard, how do banks and other lenders create credit?
If I deposit my money in a bank for safekeeping, and I can take it out at any time, then the bank can't loan it out without my permission.
Edit: BTW, we both know that the world is never going to go back to using coins for every transaction, nor is it ever going to go to 100% reserve. It's interesting to talk about, but it's like advocating going back to the stone age.
That's not what people do. I mean REALLY do. People use money as a marker, not as a store of value.
If you actually study the history of money, the use of money by real human beings, I think you'll come out with better theories.
Advocating 100% reserve money is like advocating that if everyone in the world spoke the same created language, Esperanto, there would be fewer misunderstandings and more peace. Nice idea, never gonna happen.
The gold stays in vaults because nobody wants to carry it around, and business people trade notes. If you need to do business with someone a long way away, that you don't know, then the notes get discounted. Discounted or not, people treat the notes as if they were money. And if they can't use notes, then they use scrip. That's what people really do. They create promises to pay and put them on paper and pass them around and that's money. |
