IDEAS home Printed from https://ideas.repec.org/p/ind/citdwp/09-07.html
   My bibliography  Save this paper

Why is 100% Reserve Banking Inefficient?

Author

Listed:
  • Gurbachan Singh

    () (Centre for International Trade and Development, Jawaharlal Nehru University, New Delhi)

Abstract

Financial crises are an important concern today. One part of the problem is banking crises, at the root of which is the bank run problem. One solution is 100% reserve banking. But this is inefficient. The reasons are, however, not obvious. The literature on bank runs following Diamond and Dybvig (1983) is based on banks? role in consumption smoothing. However, the earlier (rich) literature is based on banks? role in issuing deposits, which are a component of money and are a source of credit. In this context, a high reserve ratio for commercial banks obviously decreases commercial bank credit. However, in general, it does not decrease total credit. Despite this, 100% reserve banking is inefficient if competitive banks have a comparative advantage over the central bank in providing credit. The paper ends by examining the implications of a decrease in gold reserves held by the central banks.

Suggested Citation

  • Gurbachan Singh, "undated". "Why is 100% Reserve Banking Inefficient?," Centre for International Trade and Development, Jawaharlal Nehru University, New Delhi Discussion Papers 09-07, Centre for International Trade and Development, Jawaharlal Nehru University, New Delhi, India.
  • Handle: RePEc:ind:citdwp:09-07
    as

    Download full text from publisher

    File URL: http://www.jnu.ac.in/Academics/Schools/SchoolOfInternationalStudies/CITD/DiscussionPapers/DP0907.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Peter E. Kennedy, 2000. "Eight Reasons Why Real versus Nominal Interest Rates Is the Most Important Concept in Macroeconomics Principles Courses," American Economic Review, American Economic Association, vol. 90(2), pages 81-84, May.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ind:citdwp:09-07. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamprasad M. Pujar). General contact details of provider: http://edirc.repec.org/data/itjnuin.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.