The Chicago Plan - Full Reserve Banking Without Eliminating the Federal Reserve

[LibertyIn08]

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 model of the U.S. economy. We find support for all four of Fisher's claims. Furthermore, output gains approach 10 percent, and steady state inflation can drop to zero without posing problems for the conduct of monetary policy.

http://www.imf.org/external/pubs/ft/wp/2012/wp12202.pdf

[Bern]

There was some discussion in major media circles following the publication of that paper.

[hazek]

Don't worry, Bitcoin has this covered.

[Seraphim]

It would be nice to have some chartered full deposit banks with legal tender laws repealed. Gold/silver would instantly become money and people would actually trade said capital for labor. Hello freedom.

[LibertyIn08]

There was some discussion in major media circles following the publication of that paper.

Yes. I'm waiting for some critiques/responses to be published.

My hope is that people will see that there are some alternatives we could pursue outside outright FR elimination. I'm not quite convinced that actually ending the institution would be as easy as auditing. Neutering it, however, might be more politically feasible.

[TonySutton]

allowing competition without meddling will allow the proper activities to excel while the inferior will fail

[Bern]

...
My hope is that people will see that there are some alternatives we could pursue outside outright FR elimination. I'm not quite convinced that actually ending the institution would be as easy as auditing. Neutering it, however, might be more politically feasible.

Last I heard, Eric Sprott was trying to open a classical merchant banking bank in Canada:

http://www.theglobeandmail.com/repor...rticle2204088/

[Danan]

As long as there is a deposit insurance, not enough people are going to be interested in Full Reserve Banking, sadly. If you eliminate deposit insurance, the reserves for checking accounts and cash deposits should increase dramatically by market forces alone.

[LibertyIn08]

As long as there is a deposit insurance, not enough people are going to be interested in Full Reserve Banking, sadly. If you eliminate deposit insurance, the reserves for checking accounts and cash deposits should increase dramatically by market forces alone.

Under the Chicago plan there would be no scope for banks to have fractional reserve banking. Deposits are mandated to be held as full reserves.

[Bern]

As long as there is a deposit insurance, not enough people are going to be interested in Full Reserve Banking, sadly. ....

As long as people believe the government can cover an insolvent FDIC's obligations when banks fail you mean...