Chapter 9: A Proposal for Banking Reform: The Theory of a 100-Percent Reserve Requirement

In this last chapter, following a brief review of twentieth-century proposals for the establishment of a 100-percent reserve requirement in banking, we will present our recommendation for reforming the banking system, a proposal based on free-banking practices subject to the traditional legal principles which govern the monetary bank-deposit contract (a 100-percent reserve requirement). We will then compare the advantages of the proposed system with those of other possible systems, specifically the current banking and financial system and a fractional-reserve free-banking system. At that point we will review and answer the different objections made to proposals for a 100-percent reserve requirement. Then, after presenting a program of transitional stages which makes it feasible to move from the current banking and financial system to the model proposed, we will finish the chapter with a series of comments on the possible application of our recommendations to the specific cases of the European Monetary Union and the monetary and financial reconstruction under way in countries of the former Eastern bloc. The book ends with a summary of the most significant conclusions reached.