Welcome to illuminati silver, we tell you
the truth about silver. Today is Sunday 24th January 2016 and we are
producing the first of our ‘subscriber videos’ – and it’s by Al from Arkansas and his
view on the ‘Functionality of Full Reserve Banking’.
For those new to this channel, we have subscribers who sign up to our website at www.illuminatisilver.com
and one of the offers we have given our free members, is that we will, where we can, produce
a video for them on a precious metal or finance related topic providing they provide the text.
This is the first in what we hope will prove to become a popular series.
OK this is Al’s view on Full Reserve Banking: ‘A thousand years ago all of the world’s
functioning banks used full reserve banking. In an era of almost no parity across the world,
it is interesting today that all countries in the world have a fractional reserve banking
system. On top of that, all but a few extreme outliers like North Korea have a central bank
which controls monetary policy. Full Reserve Banking must then be clearly inferior to Fractional
Banking and archaic as the abacus. Right? Well, maybe not.
Before diving into the functionality of the full reserve banking system, it would be good
to have a running definition. A full reserve bank would keep all of demand deposits in
the bank’s possession and would likely charge a fee to store the depositor’s money.
Fractional reserve banks, in contrast, keep only a small percentage of demand deposits
on hand, and lend the rest out to earn interest, but typically pay the depositor a small amount
of interest on their deposit. With the definitions out of the way, let’s dive into the meat
and potatoes. The smoke and mirrors game of fractional reserve banks is revealed through
the illusion of money. Both banks promise the depositor that he can
take his cash out at any time, but clearly only one actually has the money on hand. This
seems to be a major flaw in fractional reserve banking, but usually it can be worked around
since many other depositors have money in the bank and the bank can use its fraction
of reserves to pay out a few customers at a time. The problem does then arise when bank-runs
occur. When a lot of people lose confidence in a
fractional reserve bank and try to get out all their money at the same time, the bank
cannot pay out its obligations, since they are in loans, so the bank goes under. The
governments of the world have created a system to combat bank runs with government backed
insurance on relatively small accounts and central banks act as a lender of last resort
so banks don’t go under. A full reserve bank would eliminate this risk totally since
all the depositors’ money is actually still in the bank. This does not mean the full reserve
system isn’t without its flaws however. A major hurdle for a full reserve bank is
its ability to profit and make loans. Since a bank has to keep all demand deposits on
hand, the only way to make money on this is to charge a fee for storage. The average consumer
is used to getting paid for bank deposits so a fee to hold their money may prove a major
psychological problem of the system especially since many governments offer insurance for
most deposits anyway. The other major issue is the loanable funds
market. Without banks using excess reserves for loans, the need for credit for the world
would fall to other entities such as loan sharks. This issue could be alleviated through
a device many banks already use called a CD or a certificate of deposit. CDs offer depositors
a higher interest rate than checking account today, but cannot be redeemed on demand without
a serious penalty. This keeps the loaning system up and running smoothly.
Overall, a full reserve banking system would be likely to be more honest to its depositors
on how exactly how their money is being used. The fractional reserve system just seems to
be a way to charge less interest for loanable funds so the banks can make a tidy profit.
Although it seems unlikely any major country or entity will experiment with full reserve
banking again, one small firm or country could spark the much needed change if proved successful
in implementing a full reserve banking system.’ Article Ends.
So what are your thoughts on Al’s article and what advantages and disadvantages do you
foresee with what he proposes? As we wish our subscribers to express their
views freely and without fear, all that we ask is that whether you agree or disagree
with Al, that you express your opinions in a constructive and non-offensive way. We hope
to hear your views and wish to thank Al for his contribution.
We hope you have found this video interesting and informative and if so, please give it
a thumb up and share it on twitter. Also kindly visit our website at www.illuminatisilver.com
and look at our Facebook page which is updated daily at www.facebook.com/illuminatisilver Disclaimer: Illuminati Silver owners come from a background
of Banking, International Wealth Management and Economics. Having now retired from these
worlds we are not qualified to give investment advice. Therefore, this and other productions
must not be deemed to be giving such advice and merely represent the personal views of