Alex Tabarrok points us to news that the Swiss are voting on whether to require (commercial) banks to hold 100% reserves. Now, the vote here is with regard to 100% reserves on deposits, here are a few thoughts/questions one may want to ask as we consider this:
Ordinary fractional reserve banking is one thing, credit cards are another. The idea that banks are a necessity for the protection of depositors’ money is technologically obsolete, since the money no longer exists in a physical form. It’s just pixels in a server somewhere. What sense do demand deposits make in a computer age? Why not a company that simply records electronic deposits and makes them available for transfer at a small rate, at least for those so inclined to use a computer piggy bank? Or is this what credit unions actually do?
Such a service would be a big blow to fractional reserve banks because they then wouldn’t have a reserve to fractionalize. Rationally, banks should make loans against collateral based on their equity, just like pawnshops do. While the pawn shop actually takes possession of somebody’s trombone as collateral for a loan, banks that issue mortgages on property have a real titular interest in it. The difference is that the pawn shop is using its own money, the bank is loaning that of someone else.