Montag, 13. August 2012

IMF Paper Backs Full Reserve Banking

The International Monetary Fund (IMF) has released a paper “The Chicago Plan Revisited” that supports the proposals of Irving Fisher – those which are the basis for Full Reserve Banking - using state of the art economic modelling. In their summary the authors Jaromir Benes and Michael Kumhof write:  

The Chicago Plan Revisited

"At the height of the Great Depression a number of leading U.S. economists advanced a proposal for monetary reform that became known as the Chicago Plan. It envisaged the separation of the monetary and credit functions of the banking system, by requiring 100% reserve backing for deposits.

Irving Fisher (1936) claimed the following advantages for this plan:
  1. Much better control of a major source of business cycle fluctuations, sudden increases and contractions of bank credit and of the supply of bank-created money.
  2. Complete elimination of bank runs.
  3. Dramatic reduction of the (net) public debt.
  4. Dramatic reduction of private debt, as money creation no longer requires simultaneous debt creation.
We study these claims by embedding a comprehensive and carefully calibrated model of the banking system in a DSGE (Dynamic Stochastic General Equilibrium) model of the U.S. economy.  

We find support for all four of Fisher’s claims."

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