IMF on full reserve banking

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I’m not usually one to talk about alternative monetary systems. I’m somewhat like Sell on News when it comes to our monetary system. Money is rules and the rules are as they are. Yes, it’s sometime interesting and intellectually challenging to talk about how things could be, but the system is what it is and I’m not narcissistic enough to believe anything I say is likely to change that. Yes sure, I think there are issues with the current global monetary system, but I don’t actually think that basic system itself is the major problem. From what I’ve seen over the last 5 years, the major issue is that so-called “experts” don’t fully understand what we already have which has allowed certain groups to bend the existing rules in their favour.

That said, I have long been a critic of the way in which the de-regulation of the modern banking system supports the rentiering of financial services over governments due to their unfettered ability to generate their own funding to the detriment of the whole system. Personally I think far stricter macro-prudential regulation is the answer to these issues but history has attempted to present other solutions of note.

Given my coverage of Europe I’ve also been a fair critic of the IMF. What I have noticed, however, is that in the last year or so their failings in Europe and other countries have spurred a re-think of their existing policy frameworks. Recent comments from Christine Lagarde appear to demonstrate a change of direction, although I still find that a little difficult to see in their advice within the current programs of periphery Europe.

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Although I still have my reservations about the IMF they are continuing to produce some interesting research on the world economy and the potential of alternative “rules”. One of the publications that has caught my interest of late is a working paper on 100% reserve banking that attempts to address the issue of private banking and its ability to produce destabilising boom-bust cycles.

I personally am not a supporter of the idea, for reasons I hope to have time to discuss in a further post and would much prefer to simply see the re-regulation of the existing banking and monetary system. However, in a world where the bankers appear to have won the war against politicians, full reserve banking is likely to remain a topic of economic conversation, as it has been for the past two centuries in the aftermath of economic crises.

The IMF paper is below. It’s a little wonkish but a good read for anyone with an interest in the current monetary system along with what alternative “rules” may offer.

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