How to create a banking & monetary system for the 21st century: the Huerta de Soto and Chicago plans reworked

Every economics textbook will tell you that banking is at its core a process of intermediation designed to facilitate the transfer savings into investment. In some respects fractional reserve does this much too well. It system which takes deposits and lends them out. The problem built on – for want better word deceit. Borrowers are offered secure term contracts, while depositors promised their money back whenever they it. This deceit only works because most happy keep in time. Supporters would say so what. fact exploits trait banks rather than under mattresses surely good thing. Without such system, lending not happen anywhere near same degree, credit creation be severely impeded economic activity adversely affected. with it has tendency max out times, but chronically undersupply bad times thus greatly accentuating natural ups downs business cycle. And over course time, results an accumulation debt society economically very healthy. Recent events underline these concerns. Any proposed reform monetary needs able illustrate capable delivering «right amount» as impede downturns, also act accelerator times. We can refer «optimal» quantity paper, I assess two models. One derivative so-called «Chicago Plan», set IMF Working Paper by Michael Kumhof Jaromir Benes titled Chicago Plan Revisited published August 2012. other equity-based proposal call «Huerta de Soto derived from proposals Professor Jesus Huerta his book Money, Bank Credit Economic Cycles, far 1998. Kumhof/Benes puts policy heart way more effective current system. Governments end up achieving greater control levers power today’s By contrast, opts free-market based approach resulting free genuinely open market driven entirely forces competition where governments central have no role play policy. paper spells mechanics underlying both plans, assesses relative merits. Neither plan perfect. Both propose extremely radical modern result believe potentially inflationary damaging behavioral effects transition present what proposed. away weaker politically unworkable consequences harder control. although many palatable, albeit need certain tweaks, adverse impacts arising implementation somewhat easier offset.
 Key words: Soto, Kumhof/Benes, Plan, Fractional Reser-ve, Mutuals, Quantitative Easing.
 JEL Classification: B31, B53, E42, E52.