[jmherbener]

Your inquiry raises two related issues. First, would anything except money itself and money certificates be used by people as media of exchange on the unhampered market. Would merchants in general throughout the economy accept claims on short term loans, i.e., fractional-reserve deposits like our checking accounts, instead of money or money substitutes? Not likely. Second, given that merchants accept claims on short term loans as a medium of exchange would they tolerate reserve ratios much below 100 percent. Not likely.

For time deposits, which are loans, banks will structure their reserve ratios to manage unanticipated defaults and other factors affecting the asset value of the loans. These ratios may be quite small, certainly under 10 percent for high quality loans.

Any fiduciary media issue, however, involves malinvestments in the economy. Of course, there would be fewer malinvestments the closer the reserve ratio was to 100 percent.