Icelandic Parliament investigating Full Reserve Banking

[tama]

Is Iceland – the wonderful island with just 300 thousand citizens – going to be the first country seriously questioning the privatized money creation and considering Full Reserve Banking proposals? It seems that it might well be the case…

A motion has recently been put forward in the Althing – the Icelandic Parliament – calling for the forming of a committee to report on the benefits/costs of full reserves banking. The motion reads:

“Althing concludes that the minister of finance will form a committee of specialists to research how the separation of money creation and loan function of the banking system can be achieved by limiting banks’ ability to create new deposits through lending.”

Deadlines for submission was December 4th.

More:
http://www.positivemoney.org/2012/12/icelandic-parliament-investigating-full-reserve-banking/

[bossy22]

1. I always wondered how this would work in a modern economy

would the central bank be the only national lender?

[tama]

4. Why?

Anyone can lend what money they have. This is about making it illegal to lend with interest money you don't have (e.g. lending 10 bucks when you have only 1 buck).

[bossy22]

8. exactly

you have just essentially moved lending as a function of banks that is regulated to private individuals.

What you say is exactly how modern lending works- a bank takes 10 dollars in as a deposit, and then lends out 9.

Either you have a centralized lender (a central bank) or Lending institutions (which would negate much of the benefit of a full reserve system i.e. liquidity crises) or you will wind up with a nation of loan sharks. Money isn't just paper and metal coins with dead presidents faces on them- money is a whole continium that includes "Credit" as well.

[Jim__]

2. Does full reserve banking imply that we pay banks to hold onto our money?

I'm not sure exactly what full reserve banking means. Does it mean that if I put my money in a bank, the bank just sits on it 'til I withdraw it? If so, it would seem the bank would have to charge me.

[tama]

3. We already pay banks for various services and interest for loans

But why should only private legal persons called "banks" be able to lend out with interest 10 bucks when they have only one buck? Why not all persons? This is about banning private fractional reserve banking, so that banks can only lend out what money they have either as deposits or loans, not to create money out of thin air - that would be the prerogative of central banks.

[Jim__]

9. But we don't usually pay them to hold our deposits.

But, say you have given me $200 of yours for me to hold. Suppose my friend offers me $220 if I lend him $200 today and he promises to return it by tomorrow. Is it illegal for me to lend him your $200? Now, if he doesn't give it back to me, I have a problem when you ask for your money back; but, have I done anything illegal?

[tama]

14. No, nothing illegal

But unlike legal persons, human social life is built on social capital - trust etc. It's perfectly legal to squander your long term social capital for short term monetary capital gains.

[bossy22]

10. it's clear to me that you don't understand modern banking

If a banks source of funding is from deposits, how is it supposed to lend out those deposits if it has to keep them on hand? The only way this works is if you twist the full reserve system- essentially you turn banks into investment institutions that are heavily involved in proprietary trading. The reason this would have to be is that the bank would need another source of funds that weren't subjected to the requirement to be held on hand like a deposit. That's what got us into the financial mess in the first place- when banks went from institutions that primarily took in deposits and made loans to institutions that were involved in complex derivative and speculative trading.

[Dickster]

5. What we have in this country

Fractional reserve banking. Do a google search for more info, it's too complicated to explain here. Full Reserve Banking would allow banks to only loan out what they have on deposit in the bank. Banks in this country in effect create money out of thin air every time they write a loan, and destroy when it is repaid. The whole banking system in this country is based on the fractional reserve system that allows the whole banking system to be enormously profitable. Just take a look at most communities...what's the nicest building in town? It's the bank. Iceland and Equador are the only two countries in the western world that have rebelled against this system...hurrah for them

[bossy22]

11. umm....you just described fractional reserve banking

from wikipedia
Full-reserve banking, also known as 100% reserve banking, refers to a banking practice in which the full amount of each depositor's funds is kept in reserve, as cash, ready for immediate withdrawal on demand. In other words, funds deposited in checking accounts or demand deposits would not be loaned out by the bank because the depositor has the legal right to withdraw their funds immediately upon demand.

[hunter]

6. Excellent!

I'm especially happy to kick this because it's not about guns and I don't want it to get lost.

[Dickster]

7. As long as I' here

I'll rant some about our monetary system. One of the basic rights that any sovereign country has is the ability to create it's own money. We have rented out that right to the Federal Reserve. We in effect "rent" our own currency from them, in the interest that we pay to the Fed when they create and sell bonds in our name. It' a ridiculous system that goes back to merry old England several centuries ago, and we are enslaved to it. How mush money do we pay in Interest on our debt? We should be able to create ourselves (through theTreasury) without interest.

[bossy22]

12. you do realize that by law the interest earned on federal reserve assets

must be returned to the treasury at the end of every fiscal year?