Would banks operating under laissez faire adopt a 100 percent reserve ratio or a fractional-reserve rule that would allow them to affect the money supply? The Chettiar banking system in late-nineteenth-century India functioned without any government regulation, and there is strong evidence that its bankers kept fractional reserves on interest-bearing checking deposits (explicit debt contracts that were redeemable on demand), although their ability to affect the money supply was not very large.

Malavika Nair is an Assistant Professor of Economics at Troy University.
Banking and FinanceEconomic History and DevelopmentEconomic PolicyEconomyFree Market EconomicsPrivatizationRegulation
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