So, let us describe the huge differences between Fractional Reserve Lending versus Full Reserve Lending:
You deposit money with a bank however acquired, say R100 and the bank is allowed to hold onto only a fraction of that amount of money that you just deposited, typically an average of 10% to as low as 3% of your actual cash. The bank makes you a promise that it will hold onto all your money in the event of you needing it, but it is not being honest with you and the Central Banking Laws allows for this deception. In reality and based on the previous example, it only holds R10 of your money. It then proceeds to lend out the remaining R00 of your money without your permission to other people, but the way it does this is interesting indeed. Therefore, along comes Mr Jones and borrow R100 from the same bank you just deposited your money into. The bank loans him the full amount of R100, where in reality it only had R90 of your money to lend out. Therefore, R10 was magically created, because, in reality, it did not have R100 to loan Mr Jones, right?
So here’s where it gets really funky, Mr Jones either buys a product or service with the money. The supplier that just now received his R100 goes to his bank and deposits the same money, and his bank does the same with the second R100. It holds onto only R90 just in case the supplier needs his cash urgently. So along comes another Uncle Sipho who needs to borrow R100 and the process is repeated in this concentric circle’s millions of times over and over and with each transaction, money is magically being created because of the differential between the R10 the bank actually holds onto, and the R90 it loans out disguised as R100. In this way, the bank increases the notional “value” of the original R100, 9 times over. So in effect, the bank earns interest off 9 times what you originally deposited with it, therefore, both the deceptive instrument of fractional reserve lending is used and money is being created all at the same time.
Fractional Reserve Lending is a type of legalized counterfeiting of money that is both accepted business practice and encouraged. It is the single biggest way that fiat currencies are created in the global economy and the most consistent reason for periodic economic collapse. So-called, “run on the banks” can easily happen in this scenario because this type of bank never has all its clients’ monies should they all wish to withdraw at the same time. In a sense, economic failure is built into the system we see and operate in today.
“None of us are more hopelessly enslaved than those that think they are free”
-Johann Wolfgang von Goethe
So here is what Full Reserve Lending looks like. I walk into the bank to deposit R100. The bank tells me that it is not a free deposit facility and that they will charge me a small fee for holding onto my money. I agree, but at the same time that tells me if they could loan out R90 of my original R100 just deposited, promising to pay me a small interest on the money loaned out. However, the proviso is that I can only expect to gain access to my R100 plus interest less the deposit fee 1-year from now. This is because the portion of my money they just loaned out to someone else is only expected to be fully paid in a year. So the person or borrower that just now loaned my money I deposited was also charged interest for the privilege of receiving the money. The interests on the deposits and the loans are one of the primary ways that this type of bank makes money. This means that it does not loan out money it doesn’t have and therefore, should all its depositors wish to withdraw all their monies at the same time, the bank will be in a position to pay them in full.
“Few people have the imagination for reality”
-Johann Wolfgang von Goethe