Full Reserve Banking

Under the existing bank system, it is not just central banks and governments which create money: commercial banks do so as well. Many leading economists, including at least five Nobel laureate economists, have had doubts as to whether commercial banks should be allowed to do that. Indeed one of those Nobel laureates, Maurice Allais, described money creation by commercial banks as counterfeiting.“Full reserve†and “100% reserve†are names given to bank systems where commercial banks are not allowed to create or “print†money, or at least where that money creation is curtailed. Other names include “Sovereign Money†and “Vollgeld†.The arguments for and against full reserve are complicated. One of the best arguments for full reserve, put by Joseph Huber among others, is that letting commercial banks create money amounts to a subsidy of those banks: clearly a money lender (and that is what commercial banks are) which can simply create the money it lends out is in a better position than a money lender who has to obtain money the same way every household and non-bank firm obtains money: earning it or borrowing it.