Sound Banking System (5) Stability

This banking system can operate without any need for government regulation or political interference. There is no role for governments in a sound banking system.

Inflation would disappear because political powers would no longer control and manipulate the currency in circulation. Banks would not be able to manipulate their reserves, because people would refuse to deposit money with banks that moved depositors’ money onto their balance sheets. Once this ability is gone, monetary inflation is not possible, so price inflation would disappear. Instead, prices should decline slowly over time, as technological advances make producers more productive. Falling prices make all consumers in the economy better off.

Banks would not able to expand lending to fund asset bubbles. Once investment bubbles are constrained, the bank crashes that usually follow will cease.

This full series can be found at sound banking system.