Some commentators consider fractional reserve banking as a major vehicle for the expansion in the money supply growth rate. What is the nature of this vehicle?
Fractional reserve banking arises because banks legally are permitted to use money placed with them in demand deposits. Banks treat this type of money as if it was loaned to them. However, is this really the case?
When John places $100 in a safe deposit box with Bank One he does not relinquish his claim over the $100.