Split-circuit reserve systems (100% and fractional reserve systems) in contrast to a single-circuit sovereign money system
There are basically two types of approaches to bringing about a system where the money is under public control – on the one hand a variety of 100%-reserve systems, aka full reserve systems, dating from the 1930s, on the other hand a number of variants of the newly developed approach of a single-circuit sovereign money system.
Full reserve systems retain the split between demand deposits (bankmoney) used in nonbank public circulation, and reserves (central-bank money) used in interbank circulation, thus representing a double-circuit system or split-circuit system.
A plain sovereign money system abandons the split-circuit structure based on a mixed money supply of deposits and reserves in favour of a single circuit on the basis of sovereign money only, issued by the national central bank or a comparable monetary authority.
Comparing the two systems
Here is a paper comparing 100%-reserve with a plain sovereign money system. The 100%-reserve approach, as it turns out, is not entirely consistent with its goals.
Read > 100%-Reserve and Plain Sovereign Money >
or download the paper as a PDF >
Here is a > summarising synopsis comparing 100%-reserve with a single-circuit sovereign money system.
Fusing the two systems?
The question remains: Can a split-circuit full reserve system and a single-circuit full currency system be made compatible with each other? Or, at least, can a reserve system be aligned with a plain sovereign money system? Yes, this may be achieved, but appears not to be optimal.
Read here a 6-pages paper on > How to emulate a single-circuit sovereign money system within a 100%-reserve system
or download > as a PDF.
In its Monthly Report of April 2017 the German Bundesbank has published, as an Appendix to an article on money creation today > Remarks on a 100% reserve requirement for sight deposits (after uploading go to pages 30–33). In this article the Bundesbank explains why it does not think much of 100%-reserve banking. The snag is – whether on purpose or lack of proper understanding – that 100%-reserve banking is insinuated to be the same as the present-day approach to a single-circuit sovereign money system. This, of course, calls for a > Critical response to the Bundesbank's view of 100%-reserve banking.
Michael Kumhof, then with the IMF (left and left below), presents
The Chicago Plan Revisited.
The IMF-working paper of the same title by J. Benes and M. Kumhof, 12/202 August 2012, revised draft February 2013, is available > here.
It looks as if in this case Chicago Plan, which stands for 100%-reserve banking, or 100%-money, might be a misnomer, at least partially. Rather, this version of that plan seems to be a hybrid of 100% reserve and plain sovereign money (plus a number of debatable dirigiste elements).
Is such a hybrid system feasible in practice? Would it be sensible? In payment operations either there is a bank-liability system accompanied by reserves, or the system works on the basis of fully liquid assets. If one intends to have both - 100% liquid money (payment assets) and deposit coverage - one of the two is redundant.
Here is a 30-pages paper > Many roads lead to Rome - not all by the shortest path. Reflections on the 'The Chicago Plan Revisited' in Comparison to Plain Sovereign Money
Here is a PDF of this paper >
• Here is another paper by Andrew Jackson on
The Chicago Plan and Positive Money’s Proposals. What is the difference?
Prof Kaoru Yamaguchi
A somewhat different plan for full reserve has been conceived of by Kaoru Yamaguchi, professor of economics and system dynamics, Kyoto, Japan, and developed in form of system dynamics modelling > From Debt Money to Public Money. Modeling the Transition.
By the same author > Money and Macroeconomic Dynamics, 2015-16
• Ralph Musgrave knows of > Fourty-two Flawed Arguments for and against Full Reserve Banking, taken from his Ralphonomics blog.
• Stephen Zarlenga (1941-2017), American Monetary Institute, on > The 1930s Chicago Plan and the American Monetary Act.
• 100%-Reserve Banking - the History, House-of-Debt Economic Commentary by Atif Mian and Amir Sufi, 26 April 2014.
• Système bancaire à réserves fractionnaires et la monnaie cent pour cent, présentation animée sous forme de feuilles comptables, par Stéphane David, 2013.
• Christian Gomez: > 100% money. Un réexamen de la proposition d’une réforme radicale du système bancaire: L’imposition d’un coefficient de réserves de 100%, Osons Maurice Allais.