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Fractional Reserve

Premise

Unless you reasonably expect to pay everyone you owe in full when due, pay only in proportion

This is phrased to:

  • eliminate the “bank run” where the first n creditors are paid and the remaining get nothing
  • still allow some risk taking, eg not preclude regular business to business contracting or trade credit
  • will almost certainly tip the balance in favour of equity over debt
  • build on existing “trading insolvent” and “par condicio creditorum”
  • exits from funds with non-liquid assets have to be negotiated with the other shareholders

Notes

The primary issue is that deposits issued by different banks are backed by a different pool of assets. Therefore these deposits should not have an 1:1 exchange rate. The rate should be continuously floating

Another issue is the artifical 1:1 exchange rate between bank deposits and base money

References