The single national depository monetary reform scheme -John Hermann

It is worth examining the monetary reform proposal devised by William Hummel involving a single national depository [1]. Hummel’s web article starts with an explanation of how a full reserve banking system would work, and is followed by a description of the single national depository system, its functional equivalent. The transition from a full reserve system to a single depository system is also described.

Banking reserves do not exist in the single depository system. The deposits are actual base money, rather than claims on base money, all created by the central bank. In the current system, regardless of the required reserve ratio, banks hold reserves of base money and deposits are only claims on base money.

Hummel’s national depository system specifies that only the central bank can create deposits. It would do so by buying securities in the open market or by lending to banks. Conversely it would cancel deposits by selling securities in the open market or by redeeming loans to banks.

Banking institutions hold no customer deposits in the national depository system. They operate as ordinary intermediaries who borrow to lend.

However they have at least one privilege that other intermediaries do not enjoy. In particular the funds they borrow are covered by government insurance up to specific limits.

[1] Hummel’s single national depository http://wfhummel.net/monetaryreform.html