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Fractional Reserve Banking Is Fraudulent and Ruinous

Abstract: Fractional reserve banking is a banking system where commercial banks are required to maintain only a fraction of deposits as cash reserves for withdrawal while also having the ability to create money through lending.
This remains a sensitive and contentious topic in economics. The contention lies between two branches of free market economics, with one camp arguing that it is fraudulent and the other defending its legitimacy. This article shows that fractional reserve banking is fraudulent and ruinous, asserting that it is fraudulent when banks use funds from non-interest-bearing accounts to issue loans or make investments, as this practice constitutes an infringement of property ownership rights. It is also fraudulent when commercial banks create (credit) money by lending it into existence. Additionally, fractional reserve banking is ruinous because it leads to crises and other detrimental consequences. The article is structured in four parts: the first discusses ethics and fraud; the second outlines the definition of fractional reserve banking; the third discusses the fraudulent nature of fractional reserve banking; and the fourth part examines its ruinous consequences.


Manuel Tacancho is a social philosopher and economist; founder and president of the Afrindependent Institute.