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

A Proposal for Banking Reform:The Theory of a 100-Percent Reserve Requirement 803Thus would be the end of the final stage in the privatizationof the banking and financial sector, and economic agentswould reinitiate the spontaneous market process of experimentationin the field of money and finance, a process whichwas historically interrupted by the nationalization of moneyand the creation and fortification of central banks.THE APPLICATION OF THE THEORY OF BANKING ANDFINANCIAL REFORM TO THE EUROPEAN MONETARY UNIONAND THE BUILDING OF THE FINANCIAL SECTOR IN ECONOMIESOF THE FORMER EASTERN BLOCThe above remarks on the reform of the western bankingand financial system might be helpful in the design and managementof the European Monetary Union, a topic that is currentlysparking great interest among specialists in the field. 107These considerations provide at least an indication of thedirection European monetary reform should take at all timesand of the dangers to avoid. It is evident we should steer clearof a system of monopolistic national currencies which competewith each other in a chaotic environment of flexibleexchange rates. Moreover we should avoid maintaining aEuropean central bank which prevents competition betweencurrencies in a broad economic area, fails to meet the challengesof banking reform (100-percent reserve requirement),fails to guarantee a level of monetary stability at least as highas that of the most stable national currency at any given pointin history and, in short, represents an insurmountable obstacleto subsequent reforms, i.e., the elimination of the centralfinancial planning agency (the central bank). Therefore perhapsthe most workable and appropriate model in the short107 For example, see the book, España y la unificación monetaria europea:una reflexión crítica, Ramón Febrero, ed. (Madrid: Editorial Abacus,1994). Other relevant works on this debate include: Pascal Salin, L’unitémonétaire européenne: au profit de qui? (Paris: Economica, 1980); and RobinLeigh Pemberton, The Future of Monetary Arrangements in Europe (London:Institute of Economic Affairs, 1989). On the different ideas ofEurope and the role of its nations, see Jesús Huerta de Soto, “A Theoryof Liberal Nationalism,” Il Politico LX, no. 4 (1995): 583–98.