Reply To: Is Fractional Reserve Banking Inflationary.. or not really?


Thank you Mr Herbener.

So, to make sure I got it, all that a commercial bank needs is some sort of “buffer monetary reserve”, that will make sure that daily fluctuations (money from the bank’s deposits moving to other banks) can be temporarily covered.

Such fluctuations are many for banks having hundreds of thousands of customers, and they will tend to cancel out. Maybe at the end of each day only small offsets remain…. let’s say about a billion of $ leaves a bank, about a billion comes in, and maybe only a few millions are a daily offset, for which banks have well prepared reserve buffer. Am I correct?

If so, then my question is answered, commercial banks are able to increase money supply in such roundabout ways. In my example from the post above, the initial $1000 deposit can originate $10,000 in various deposits, which can safely change hands between commercials banks, following the exchange of real (physical) goods and services.. just what these dollars would do if they were “printed out of thin air”.