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« Vincent Ostrom --- theorist of polycentric order | Main | There is No Great Stagnation: External Hard Drive Edition »

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Regarding Larry White's testimony:

I'm not well-versed enough in the literature to have anything near an intelligent discussion about the merits of fractional reserve vs. full-reserve banking. I do, though, think that Mr. White's argument in favor of FRB that utilizes the benefits of banknotes (which could not exist in a full-reserve system) falls short.

For instance, I use a debit card to make almost all of my purchases. This means that any payments I make are transferred on the "back end" almost immediately. Thus, banks are very aware of who owns how much of their fungible deposits. Charging "storage fees" would then be very easy--simply charge all depositors a percentage of their average deposit over a given time period.

Does that make sense? Basically, I'm saying banknotes are no easier than debit card, and that their coming into existence should not be used as an argument in favor of FRB.

Obviously that does not mean other arguments in favor of FRB are bunk. I think my point is, however, a good rebuttal to White's point regarding the anonymous transfer of bank notes.

I'd appreciate your thoughts...I'm still trying to work through this issue for my own understanding, and I very well may be overlooking some significant issues.

Your debit card is the rough equivalent of a checkbook: you are making a direct transfer of money out of your account. This is very different from a banknote. Anonymity is one differentiator, and in a society with a surveillance state, is not an insignificant feature. Banknotes also allow me to engage in transactions with those without the equipment and arrangement to handle debit cards. I can give you a $20 banknote at your yard sale for that old sofa, but you aren't set up to take my debit card. And there are also the transaction costs to factor in. The use of debit cards is not without an additional, though tiny, cost.

This is not to disparage debit cards. I think they are a marvelous innovation. But I do believe there will be a social use for the classic banknote for some time to come.

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