Money, Bank Credit, and Economic Cycles - The Ludwig von Mises ...

A Proposal for Banking Reform:The Theory of a 100-Percent Reserve Requirement 787agreement.” Although the most advantageous course of actionwould be to establish a pure gold standard and 100-percentreserve requirement on an international level, and though anagreement to do so would tremendously facilitate a transitionto the new system, there is no reason the different statesshould not work separately toward the ideal monetary systemuntil such an international agreement is possible. This is preciselywhat Maurice Allais recommended for France (beforethat country decided to be included in the European MonetaryUnion). 93 Allais indicates that the establishment of a 100-percent reserve requirement and the maintenance of a highlyrigorous monetary policy on the part of the central bank (apolicy which would permit the monetary base to grow by nomore than 2 percent per year) would be an initial step in theright direction, and the United States, the European Union,Japan, Russia, or any other country could take it alone. Moreoverwe must keep this idea in mind when evaluating the differentprograms for monetary unification which have beenestablished in certain prominent economic areas, specificallythe European Monetary Union. We will consider again thismatter in the following section.Furthermore the establishment of fixed, yet revisableexchange rates between the different countries might obligethe nations of an economic area to follow the leadership ofthose states which most clearly and steadily advance in theideal direction. Thus an irresistible trend toward the achievementof the proposed goal may arise. 9493 See Allais, “Une objection générale: la construction européenne,” pp.359–60 of his article, “Les conditions monétaires d’une économie demarchés.”94 At any rate, if strong economies, like the United States and the EuropeanUnion, were to establish a gold standard and 100-percent reserverequirement, they would be setting an immensely powerful example inthe monetary field, an example other countries would be compelled toheed.