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Interesting Cobden Center post by John Cochran, including a great deal of discussion in the comments, about fractional-reserve and freebanking.
Though I agree that FRB is fraudulent, I’m not sure that outlawing it would change banking substantially.
Essentially one can think of the “depositors” at a FRB as equity holders. Deposits and bank notes can then be seen as highly liquid proportional shares to the assets of the bank, rather than as property titles to hard cash. One major difference is of course that the proportionality is upper bound by the nominal value of the account or notes, while the downside depends on the soundness of the assets backing them.
Clearly stating the nature of bank notes as equity would likely reduce peoples willingness to accept such notes and deposit accounts, just as people now stay away from equity markets with their savings and don’t generally accept IBM Stock in payment. Such an arrangement may however offer benefits in terms of banking services to offset this tendency, which is something that should be determined in the market.
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