Hello Nicolas, what do you think about Mileis proposal of separating the commercial banks with the investment banks, in which he wants a 100% reserve on deposits. Thanks
Let me first explain what I understand is Javier's rationale. My reading of his argument is that if Argentina unilaterally dollarizes, it loses access to a lender of last resort (LOLR). Therefore, a 100% reserve (or high liquid investments) would solve the problem of not having access to a LOLR. If I understand him correctly, this line of argument is his rationale.
I'm afraid I have to disagree with Javier on two accounts. As I explain in my post, the first one is that Argentina already *does not* have a LOLR because the market does not demand pesos. Therefore, in hypothetical dollarization, Argentina does not lose a LOLR it does not have in the first place.
The second one is that, looking at the historical record, the market did not choose Milei's proposal. For someone who claims to be such a libertarian, I would expect more "respect" for market outcomes than what he is showing on this topic. To a significant degree, 100% reserve options exist in the market. Anyone is free to use safe deposit boxes or make a deposit at a money market mutual fund (MMMF) that is run-safe. There is no need to impose a "Simon" style reform on the banking sector because 100% reserve options are out there already.
It is good that Milei, now a congressional representative, is pushing a radical monetary reform such as dollarization. However, it seems that he did not carefully study how dollarization works in other countries. In particular, for this topic, how dollarized countries manage to have access to LOLR services without imposing a 100% reserve requirement.
Finally, dollarization would require an important degree of support from different political groups and market sectors, such as the financial market. His proposal is unlikely to bring banking support, which means he has a very low probability of success.
Thank you so much for the response! I fully agree with you that the bsnking sector would never accept that!
I suppose no country in the world is applying simons system...but wasnt Mises proposal or other Austrians? I know that other austrians accepts the fractionary system also.
I hope.you can get involved somehow in the process!!
I don't see Mises as a supporter of a 100% reserve banking regime. I know that is the reading of some Austrians, such as Rothbard or Huerta de Soto. But, I disagree with their reading of Mises. I explain it here:
I find Mises as a supporter of free-banking. The case where comes closer to a 100% reserve requirement is when he develops his proposal of monetary reform. However, the 100% reserve requirement applies to central banks (issuer banks), not commercial banks. Something similar to the Argentine currency board, where the central bank was required to hold 100% reserves (at least ideally) but same requirement did not apply to commercial banks.
Hello Nicolas, what do you think about Mileis proposal of separating the commercial banks with the investment banks, in which he wants a 100% reserve on deposits. Thanks
Thank you, Juan, for dropping by.
Let me first explain what I understand is Javier's rationale. My reading of his argument is that if Argentina unilaterally dollarizes, it loses access to a lender of last resort (LOLR). Therefore, a 100% reserve (or high liquid investments) would solve the problem of not having access to a LOLR. If I understand him correctly, this line of argument is his rationale.
I'm afraid I have to disagree with Javier on two accounts. As I explain in my post, the first one is that Argentina already *does not* have a LOLR because the market does not demand pesos. Therefore, in hypothetical dollarization, Argentina does not lose a LOLR it does not have in the first place.
The second one is that, looking at the historical record, the market did not choose Milei's proposal. For someone who claims to be such a libertarian, I would expect more "respect" for market outcomes than what he is showing on this topic. To a significant degree, 100% reserve options exist in the market. Anyone is free to use safe deposit boxes or make a deposit at a money market mutual fund (MMMF) that is run-safe. There is no need to impose a "Simon" style reform on the banking sector because 100% reserve options are out there already.
It is good that Milei, now a congressional representative, is pushing a radical monetary reform such as dollarization. However, it seems that he did not carefully study how dollarization works in other countries. In particular, for this topic, how dollarized countries manage to have access to LOLR services without imposing a 100% reserve requirement.
Finally, dollarization would require an important degree of support from different political groups and market sectors, such as the financial market. His proposal is unlikely to bring banking support, which means he has a very low probability of success.
Thank you so much for the response! I fully agree with you that the bsnking sector would never accept that!
I suppose no country in the world is applying simons system...but wasnt Mises proposal or other Austrians? I know that other austrians accepts the fractionary system also.
I hope.you can get involved somehow in the process!!
Thanks again!!!
Juan,
I don't see Mises as a supporter of a 100% reserve banking regime. I know that is the reading of some Austrians, such as Rothbard or Huerta de Soto. But, I disagree with their reading of Mises. I explain it here:
http://www.cevroinstitut.cz/upload/ck/files/Casopisy_clanky/12_05_NPPE_Vol7_06.pdf
I find Mises as a supporter of free-banking. The case where comes closer to a 100% reserve requirement is when he develops his proposal of monetary reform. However, the 100% reserve requirement applies to central banks (issuer banks), not commercial banks. Something similar to the Argentine currency board, where the central bank was required to hold 100% reserves (at least ideally) but same requirement did not apply to commercial banks.