21 Jan '13, 3pm

Economics of Bitcoin: Market forces and Fractional Reserve Banking

Ralph Musgrave made a blog post "Lawrence White Tries to Argue for Fractional Reserve Banking " where he criticises some of the arguments made by Lawrence White in testimony on his fractional-reserve banking . I tend to agree with many of the things Ralph wrote, but here I'll concentrate one one aspect where I disagree. Ralph writes: "In fact there is no reason to suppose that “payment services” provided by a fractional reserve bank are any cheaper or “more economic” than those provided by a full reserve bank. That is, the ACTUAL COSTS (clearing cheques, issuing bank statements, etc) are the same in both cases. However, fractional reserve offers depositors interest on their deposits. And if you deduct that interest from the costs of payment services, then of course the cost of those services could be said to be reduced. But the reality is that this is just cross-subsidisat...

Full article: http://www.economicsofbitcoin.com/2013/01/market-forces-a...

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