I just read an excellent article/interview by Jon Matonis interviewing Peter Šurda about the topic of: How Cryptocurrencies Could Upend Banks' Monetary Role. And in this interview Peter Šurda says something that really turned a light bulb on for me.
Here's what I realized:
Fractional reserve banking, as it exists today, should really be called Highly Liquid Debt Banking which is just a certain kind of fractional reserve banking where not all fractional reserve banking falls under this term.
I made this realization while reading this part of the interview:
(emphasis added by me)Peter Šurda:
..
In other words, we need to separate two things. Why do people want to hold fractional reserve banking instruments, which may include the interest payments as one of the reasons, and why do people want to use fractional reserve banking instruments as a medium of exchange which, I argue, requires that the fractional reserve banking instruments decrease transaction costs. That they historically manifested themselves through a common instrument is an empirical quirk and not an economic rule. The ability to loan money is beneficial. Contrary to many Austrians, I agree that maturity transformation can be beneficial, and if the loan ends up being a liquid instrument, it also can be beneficial. But if it is so liquid that it becomes a part of the money supply, that's when it has a detrimental effect on the economy.
..
And he really nailed it here I think. I think this is the reason why we Austrians are so torn in two camps. One side is arguing for fractional reserve banking in a market strictly regulated by consumption, i.e. a free market, and the other side is arguing against just one manifestation of fractional reserve banking which should really be called as I suggested highly liquid debt banking and has a high chance of not even occurring under the scrutiny of a market regulated strictly by consumption and is only possible because of conditions provided by government decree.
Basically I think that both sides are simply arguing past each others points.
One side correctly sees that technically speaking fractional reserve banking (even today) does not create more money, and the other side correctly sees the inflated money supply due to highly liquid debt circulation side by side with the actual money supply recognizing it as a problem for the economy. Both groups are right is what I'm getting at!
Bitcoin(and perhaps future cryptocurrencies like it) as explained in the linked interview might actually render this pointless divide extinct and boy what a future that would be.
Please, I ask you kindly, if you're going to reply to this thread, don't do it unless you can hold in your emotions and present logical fallacy and sophistry free arguments!
Now, discuss!
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