Could this be a step in the right direction?
We are assuming a fiat monetary system here.
How would this effect the system if it were implemented today?
No, for two reasons:
1. Moral: Libertarians believe first and foremost in the "Non-Aggression Principal". Simply stated: People should not aggress (use fraud, force or the threat of force) against the people around them, (Except in the case of self defense) and should tolerate the behavior of others as long as they are not using fraud, force or the threat of force against others. Having an agent with the power to use force regulate the behavior of another should be abhorrent to all liberty loving people. And normally adding more force and intervention on top of the piles of force and intervention already in the market place will only lead to more force and intervention.
2. Practical: As long as fiat currency exists, central bankers and their buddies who are not stupid will find ways to inject fiat money into the system. (The government could give it to AIG from loans it makes for exaple.). Or as Ben suggested, use the technology of printing to create bushels of currency notes and toss them from helicopters. Of course tossing them on your friends would be better for Ben and his ilk which is what they do.
A better solution would be to remove all force in the financial system, especially that from the central banks. This includes their ability to create money. Then you would have markets through profit and loss determine how much fractional reserve banking can be used by people in the banking business. OR BETTER YET: Use contracts on withdraw which will turn demand deposits into non-demand deposits(The bank holds the right to restrict withdraw to allowing 10% per week for 10 weeks.) This will allows bankers and customers a wide range of deposit types unlike the two availble today.
Kenneth:Could this be a step in the right direction?
Yes.
Kenneth:How would this effect the system if it were implemented today?
Every bank would fail and new ones would sprout up.
At most, I think only 5% of the adult population would need to stop cooperating to have real change.
I dunno, which direction do you want to go in?
Banks don't tend to have all their deposits on hand at any one time so they'd all have to turn to the Fed and then the Fed would have to recapitalize whichever banks it thought were most vital to the system at the expense of "non-vital" institutions. There would probably be runs on every single bank the Fed didn't pledge to recapitalize.
Let me put it this way. Let's assume for one minute Ron Paul or someone like him got elected who believed in sound money. Obviously, the Federal Reserve is still likely to remain in power. Thats said, he can nominate a Fed Chairman who's sympathetic to the Austrian school (or is an Austrian).
If that were the case, he could begin raising reserve requirements until they hit 100%, and he could, say, start selling current assets and make it so that the only thing on the Fed's balance sheet is gold.
It wouldn't be perfect, that's for sure,but it would result in a pseudo gold-exchange standard that would be superior to what we have now,but definitely inferior to free banking and competing currencies.
I personally believe that would be a step in the right direction if abolishing the Fed appears to be totally infeasible in the near-term, but, long term, it's not a viable solution as you have a system that would be dependent on future Fed Chairman doing the same thing as the Austrian Fed Chair (which, they won't).
Resident Christian Anarcho-Capitalist.
Not sure but I'll take a stab. As the realization of such a possibility spreads, everyone writes checks for the whole value of their checking and savings accounts, and buys gold with them. The Fed prints enough to make every check whole. Gold goes to $10,000/oz.
Z.
I think it would be the best alternative to free banking. I could be mistaken, but wouldn't it cause the Fed to collapse, because central banking serves as a safeguard for fractional reserve lending?
A step in the right direction? Sure, but that's not saying much.
"If we wish to preserve a free society, it is essential that we recognize that the desirability of a particular object is not sufficient justification for the use of coercion."
100% percent reserves of what to what???
govt paper dollars to checking account dollars???