In the olden days, economists would argue about whether fractional reserve banking should be banned, and 100% reserve banking should be mandatory.

In today's mirror world, economists are arguing about whether fractional reserve banking should be mandatory, and 100% reserve banking banned. Or at least strongly discouraged.

What JP Koning calls "cash escape inhibitors" (designed to discourage or limit banks' holding currency), and negative interest rates on commercial banks' deposits at the central bank, are both designed to prohibit or discourage 100% reserve banking. It doesn't really matter whether commercial banks hold their banknotes created by the central bank in a vault at the commercial bank or in a vault at the central bank. As long as the central bank keeps a record of how many banknotes each commercial bank holds, it does not even matter if those banknotes exist or all got burned in a fire.

If I understand the Swiss correctly, a group of Swiss citizens are trying to make 100% reserve banking mandatory, while the Swiss National Bank is doing the exact opposite by trying to discourage or prohibit 100% reserve banking. My uncle, who lives in Switzerland, always jokes that if something is not mandatory it is prohibited.

It's a strange argument, because 100% reserve banking, or the abolition of commercial banks, does not make monetary policy impotent. If anything, monetary policy is more powerful, because the stock of money is directly under the control of the central bank. I think the confusion arises because people confuse monetary policy with some sort of "credit" policy. I can create credit, by borrowing $20 from a friend and giving my friend a bit of paper with my IOU on it. But my IOU does not get used as a medium of exchange; my friend will not use it to buy lunch at Tim Horton's. I am not creating money.

It's a strange argument, because 100% reserve banking is like nationalising the asset side of commercial banks' balance sheets. The central bank buys the commercial banks, changes the composition of those assets if it wants to, then contracts out the management of chequing accounts. Central banks are refusing to nationalise the asset side of commercial banks' balance sheets. I'm not sure if people understand which side they are supposed to be on, and why they would be in favour or against that nationalisation of banks' assets.

Everything old is new again, with - replacing +, and < replacing > .