> Since we don't know what happen with the proceeds from the
> issuance of these e-gold bonds, the risk cannot be controlled.
>
> That is how I understand fractional reserve banking.
I don't think your terminology is correct. I don't believe bonds can be
issued that way. However, that's not the point I want to make here. Your
question is about risk which cannot be controlled. I just want to point out
that this type of risk is born by the institution practicing fractional
reserve banking, and those who participate in it. If a bank cannot pay its
demand deposits, because it has issued too many loans for its deposited
currency, then it will default and all risk will lie with those who loaned
the bank their money. The underlying currency suffers no risk. If an e-gold
bank wanted to issue loans in e-gold, and such a bank defaulted, then this
bank and its members would suffer all the consequences. No other e-gold
holder would be harmed.
I don't like fractional reserve banking, but I do believe that if the US
government had allowed some major banks to fail, in the 1830s, instead of
propping them up, then the people would have learned that they WERE taking
risk when they put their money in such banks. I think this would have
created a demand for 100% reserve banks in the 19th century, which would
have thwarted many of the problems that seemed to plague that century when
various banks went under. Who knows... if it had become well known that
people were taking the risk, 100%-reserve banks may even be the norm today,
especially since bank accounts which charge bank fees seem to overwhelm
interest bearing accounts these days. Aren't checking accounts far more
common than savings accounts these days? If so, then do banks really need to
participate in fractional reserve banking today? There might be fewer banks,
but with their fees as high as they are, they should be able to do well. The
fees on the average checking account, here in the US, are FAR higher than
E-Gold's fees.
Sincerely,
Craig
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