The monopoly of the Fractional Reserve Banking revolves around interest which is contrary to the philanthropic objectives intended for beating the extremities of poverty and the creation of dignified channels of financial support for the down trodden with a view to achieve the lofty goal of egalitarian society in sustainable manner. John Maynard Keynes contended that without the abolition of interest, unemployment cannot be eradicated.
Silvio Gesell castigated interest on the basis that his sales were more often related to the price of money (i-e interest) than people’s needs or the quality of his products. Gesell also launched “Stamp Script Movement” to make money a public service for a use fee but all his efforts went in vain. Today, the world is in need of panaceas that can make a solid ground for interest free economy, global balance of payments and prevention of future economic collapses.
The Fractional Reserve Banking (FRB) became a legalized form of economic sacerdotalism at national and international level after the establishment of Bank of England and the foundation of International Financial Institutions (IFIs). The era of this banking has affected the countries and humanity in form of national debt, money supply, buying power, business cycle, imbalance of payments, increased taxation and economic depressions.
The FRB has been an incremental and instrumental tool in heaping up the external and domestic debts of various nations. The sad part of the story is the interest payments on those debts which add more to the holocaust and inferno. In the financial year of 2014-15, the UK government rewarded £34 billion overall interest on its national debt, which amounted to 4.6% of overall spending according to the Institute for Fiscal Studies (IFS).
The economists must ferret out a system of interest free credit. The Chicago Plan, A Program for Monetary Reform, American Monetary and Financial Security Act and Chicago Plan Revisited are the masterpieces for abolition of fractional reserve banking and imposition of Full Reserve Banking. The substitutes also include Islamic Banking and Constitutional Monetary System of Lincoln.
The best example of interest-free Full Reserve Banking is Jord Arbete Kapital (JAK) bank in Sweden while modern Islamic banking is an established fact at global arena since 1960s. Furthermore, the International Financial Institutions (IFIs) should initiate interest write off programs for developing countries under special initiatives because it is the interest or debt service which is feasting on the flesh and bones of developing world especially those nations that are dependent on others and in which corruption and embezzlement are rampant.
As far as the recovery of loans from developing and poor countries is concerned, it can be dwarfed by galvanizing the debt-equity swap method. Hence, it is concluded that the economic salvation depends on the total elimination of fractional reserve banking because the money which is created out of nothing is tantamount to immoral and deceptive activity.