Worthwhile: Overdrafts with 100% reserve banking

This is an automatically generated TL;DR, original reduced by 78%.

Who decides the limit on the number of red notes each individual may have in his box? Can it be decentralised so that commercial banks set those limits? If it is decentralised, is the commercial bank liable if the individual holding red notes becomes insolvent? If no, then commercial banks face moral hazard in setting that limit.

If the central bank: creates one green note plus one red note on demand; and destroys one green note plus one red note on demand, then the value of one red note will always be minus the value of one green note.

If the central bank controls the net stock of notes , and commercial banks control the gross stock of notes , then commercial banks do control the stock of money in one important sense, despite 100% reserve banking.

Extended Summary | FAQ | Theory | Feedback | Top five keywords: Bank#1 note#2 box#3 red#4 commercial#5

Duplicates found in /r/Economics, /r/economy and /r/POLITIC.

/r/POLITIC Thread Link - orthwhile.typepad.com