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That promise is based in trust that when someone wants their gold back out, they can get it. If there is little confidence in that, people wouldn't store their
by throwaway13337 6y ago
That promise is based in trust that when someone wants their gold back out, they can get it.
If there is little confidence in that, people wouldn't store their gold there.
There is, therefore, a natural limit to how fractional your reserve can be and keep trust over a long term.
With fiat currency backed by nothing, the reserve no longer needs to exist at all as long as you have control over the creation of new money.
I'm not saying the gold standard is the answer but it is different. That difference does not go away when we talk about lending.
- pessimizer 6y ago> There is, therefore, a natural limit to how fractional your reserve can be and keep trust over a long term. The point is that both fiat and gold sit in a system of debt powered by trust. If you're theorizing a natural limit to the smallness of reserves, you might as well be theorizing a natural limit to the amount of money that can be printed. edit: it's certainly physically easier to have no reserves than to print infinite paper.
- beefield 6y agoThat natural limit is way, way, beyond levels that cause catatrophic disturbances in economy[1], thus the distinction is irrelevant. [1] See your favourite mania, or even crisis of 2008 that can be argued to be because of failure of regulation to limit leverage of financial institutions.