Divorcing money creation from bank loans: revisiting the “100% money” proposal of the 1930s

Dissocier la création monétaire des prêts bancaires: retour sur la proposition "100% monnaie" des années 1930

Samuel Demeulemeester

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Abstract: The 2007-2008 global financial crisis has brought strong renewed interest in the "100% money" reform proposal, inherited from the 1930s, which aims at divorcing money creation from bank lending by imposing 100% reserves on current account deposits. This reform idea, however, is frequently subject to confusion, being sometimes likened to the idea of abolishing bank intermediation, sometimes to that of setting up a currency board, or yet mistaken for the more recent "narrow banking" proposal. For this reason, this article offers to clarify its concept and objectives, by revisiting the works of the authors of this proposal in the 1930s—Henry Simons, Lauchlin Currie and Irving Fisher in particular. After briefly recalling the history of the "100% money" idea, we present its main arguments, and then discuss its implications for the payment system, bank intermediation, and the institutional framework of money issuance. We conclude on the importance of a conceptual clarification of this reform idea in respect of the ongoing discussions about it.

Keywords: 100% money; money creation; Irving Fisher; Chicago Plan; narrow banking; 100% monnaie; Plan de Chicago; création monétaire (search for similar items in EconPapers)
Date: 2022-09
New Economics Papers: this item is included in nep-his, nep-hme, nep-hpe, nep-mon and nep-pay
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Published in Revue d'économie politique, 2022, 132 (5), pp.835-859. ⟨10.3917/redp.325.0835⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03938669

DOI: 10.3917/redp.325.0835

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