The Ethics of Fractional-Reserve Banking System: A Private Property Rights Approach

Abstract

It is generally stated that the fractional-reserve banking system (FRBS) is consistent with sustainable economic growth and development. While it assumes that depositors will not be a joint demand who will claim all their money simultaneously, it supposes that a monetary aggregate greater than the monetary base will not harm economic performance. However, the FRBS’s call to central banks casts doubt on the sustainability argument and its ethical support. This article explores the FRBS from the ethics of private property, proving a radically different course to promote sustainable economic growth and development. After reviewing and discussing the ethics of private property for the FRBS and its call for central banks, the case of fiat inflation and business cycles clarifies the narrow relationship between ethics and sustainability. These findings are applied to some modern ethical dilemmas around the FRBS, proving novel avenues for policy reform and research opportunities. © 2023 by the authors.