Fractional-reserve banking: Difference between revisions
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The amount of the deposits equals the amount of the reserves times the deposit multiplier. For example when a bank has $100 in deposit and then loans $500, by creating new money, it is doing 1/5 fractional reserve banking and hence the name. |
The amount of the deposits equals the amount of the reserves times the deposit multiplier. For example when a bank has $100 in deposit and then loans $500, by creating new money, it is doing 1/5 fractional reserve banking and hence the name. |
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In the U.S., this system is maintained by the [[Federal Reserve Board]]. Since many are unaware of the existance of this [[banking]] practise, some people call it the 'fractional reserve banking system scam'. |
In the U.S., this system is maintained by the [[Federal Reserve Board]]. Since many are unaware of the existance of this [[banking]] practise and because of the possible controversy in the process of banks giving [[debt]] [[loan]] from fractional reserve banking created money, some people call it the 'fractional reserve banking system scam'. |
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The process of fractional reserve banking naturally causes [[inflation]]. To the different price indexes the effect comes with a delay and thus extensive use of fractional reserve banking has the tendency to create an [[economic bubble]], which might result in [[hyperinflation]]. |
The process of fractional reserve banking naturally causes [[inflation]]. To the different price indexes the effect comes with a delay and thus extensive use of fractional reserve banking has the tendency to create an [[economic bubble]], which might result in [[hyperinflation]]. |
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Revision as of 19:46, 30 December 2003
Fractional reserve banking is a banking system in which only a fraction of the total deposits managed by a bank must be kept in reserve, in contrast to full reserve banking, where all deposits must be backed by reserves.
The amount of the deposits equals the amount of the reserves times the deposit multiplier. For example when a bank has $100 in deposit and then loans $500, by creating new money, it is doing 1/5 fractional reserve banking and hence the name.
In the U.S., this system is maintained by the Federal Reserve Board. Since many are unaware of the existance of this banking practise and because of the possible controversy in the process of banks giving debt loan from fractional reserve banking created money, some people call it the 'fractional reserve banking system scam'.
The process of fractional reserve banking naturally causes inflation. To the different price indexes the effect comes with a delay and thus extensive use of fractional reserve banking has the tendency to create an economic bubble, which might result in hyperinflation.