Money Creation: Need for Adopting 100 Percent Reserve System

Abstract

In the current fractional reserve banking system, new money is created when
banks give loans, and banks' lending decisions determine the total quantity of
money that circulates in the economy. It is the root cause of instability in the
global economy, and the vicious circle facing poor economies like that of
Pakistan. Interest payments are eating up around 60% of government revenue.
Within debt servicing, the bigger issue for Pakistan is that of the domestic debt
being provided by the banks as 90% of interest costs are for servicing domestic
debt. This system has to be replaced with the Hundred Percent Reserve System
(HRS) by separating deposit banks from financing/investment entities to create
a stable economic environment. The Chicago Plan and the Sovereign Money
approach were proposed to prohibit private banks from creating money by
abolishing fractional reserve banking