I think, Sam, that you are on the right track there. Fractional reserve is
fine IF the institution tells the customer in the user agreement, "If you
ask for your money at any time we MIGHT give it to you, or we MIGHT NOT."
Perhaps a better way of dealing with that problem is short-term rolling CD's
where you lock your money in for a week or a month at a time. This gives
the institution some predicatability and run protection.
As the issue applies to gold digital currencies, I would suggest the
following standard should be adopted in the industry:
A currency that is 100% backed by gold may sell itself as "AUG" or "grams of
gold".
Any financial instrument, whether it be a currency, investment, or other,
that is only partially backed by gold or gold currency, and partially backed
by something else (whether something else is "nothing" or "gold stocks" or
"mutual funds" or "currency basket") may sell itself as "AUG equivalent" or
come up with some abbreviation so that the consumer can tell that this
product is measuring it's value in units of AUG, but isn't actually AUG.
Kind of like selling a mutual fund denominated in dollars instead of shares.
The mutual fund is not backed by dollars, but it is a liquid investment that
is easily converted to dollars, so you just denominate it in dollar
equivalents.
This in my mind would solve the problem of diluting the value of gold by
selling "ether gold" ("ether gold" = selling units of gold that are not
actually backed by gold.).
----- Original Message -----
From: "Samuel Mc Kee" <[EMAIL PROTECTED]>
To: "e-gold Discussion" <[EMAIL PROTECTED]>
Sent: Tuesday, June 26, 2001 11:16 AM
Subject: [e-gold-list] RE: Fractional Reserve Banking... What is it good
for?
> I am quite possibly going to brand myself a pariah on this list by
standing
> up in favor of fractional reserve banking, though certainly not its
current
> incarnation.
>
> There is nothing wrong with fractional reserves per se. The problem is the
> incestuous relationship between the "checking" and the "savings" parts of
a
> bank. The "checking" part should be 100% backed by cash in the vault. The
> "savings" part should be a completely seperate entity that holds an
account
> at the bank and has no claim on the bank other than the balance of its own
> checking account. The two institutions should be incorporated separately,
> and neither should own a piece of the other.
>
> Ideally, if Sam's Savings has five million in deposits, one million in
> reserves, then the one million should be in a checking account owned by
> Sam's Savings at Joe Blow's Bank, and it should be 100% backed by cold,
hard
> cash in the vault. Sam's Savings would then pay monthly fees to Joe Blow's
> Bank to store the cash (does this sound familiar?). If Sam's Savings goes
> belly-up because of loan defaults, depositors and whoever else has a claim
> against it can come after the million but can't touch the rest of the
money
> in Joe Blow's vault because it never belonged to Sam's Savings in any way.
> If Joe's Bank goes belly-up...well, Joe's Bank _can't_ go belly-up.
>
> The virtue of this system is that people who want to earn interest can
> voluntarily deposit their money into Sam's Savings and understand that
they
> are taking a risk. People who want their money safe can keep it in a
> checking account at Joe Blow's bank and understand that they are giving up
a
> chance to earn interest and will actually pay monthly fees. It's their
> choice.
>
> Sadly, the banking system we actually have is the evil twin of the system
I
> just described. In our present banking system the two entities are
> comingled, so customers have no choice. Someone with all his money in a
> checking account is put at risk because the bank can go belly-up because
of
> bad loans.
>
> Of course, banks are "insured" by the FDIC. That simply means that
> taxpayers, who have no say in the banks' decision-making process, are
forced
> to pay for irresponsible decisions made by bank managers. When a bank
fails
> the politicians, bank regulators and all their relatives are warned in
> advance so that they can withdraw their funds. The remaining mess is then
> paid for by the taxpayers.
>
>
>
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