Vision & Mission
Sustainable Development Goal 9
Full Reserve Banking
There have been 511 bank failures between 2009 – 2020. The cost of these failures has has a cost of Deposit Insurance Fund (DIF)
Full Reserve Banking
TLDR: Banks don’t keep all of the money people deposit with them in cash. Instead, they lend most of it out to others and use the profits generated to cover their own expenses. This can cause problems if the bank goes bankrupt or cannot pay back its debts, as people and businesses can lose their money. ARYZE is proposing a system to eliminate credit, bank, and counterparty risk, where the assets backing Digital Cash are backed one-to-one in a full-reserve banking model.
The money people have in the bank is not the same as physical cash, but rather exists as a form of debt certificate (IOU). This means that if someone has, for example, €100 in the bank, the bank may only keep €10 in central bank deposits and can loan out €90 to other people and businesses. The people who take out loans will pay interest on those loans, which is how banks make money. The idea for full-reserve banking (meaning that the bank would have to have all of the money that its customers have on deposit and could not loan any of it out) comes from The Chicago Plan, a set of proposals made during the Great Depression to stabilize the economy.
When we look at the subject of credit, sudden increases and contractions of bank credit are not necessarily driven by the fundamentals of the real economy. Today, banks can generate their own funding deposits in the act of lending. By contrast, implementing the Chicago Plan would turn banks into intermediaries that depend on obtaining outside funding before lending
Under The Chicago Plan, the quantity of money and the quantity of credit would become completely independent of each other, and financing of new bank credit can only take place in the form of government-issued money or through the borrowing of existing government-issued money from non-banks, but NOT through the creation of new deposits by banks.
Financial institutions take risk which, we have limited insights into, based on our deposits of money, which leaves our money at risk if a financial institution defaults unless the deposits are credit insured or government guaranteed. Corporate deposits are generally not insured or guaranteed.
Bank credit policies in turn often have positive or negative economic consequences beyond what is acceptable from a general national economic perspective. Furthermore, private and public debt also play a role in credit and market risk, more importantly so, after the onset of the pandemic.
Full Reserve Banking
ARYZE is proposing is a 1 to 1 representation of money that is not fragmented and based on lending. This means that when we receive a deposit of €100, then we invest €100 in the European Bills & Bonds, or place €100 directly in the European Central Bank. We will not keep any money in a bank, and we will not lend them out, nor offer credit. Digital Cash exist 1 to 1 and it must exist in such a way that even if ARYZE ceases to exist as a financial institution then the money is secure. We do not touch the money and more importantly, the money is not ours.
ARYZE will contribute to financial stability based on the principles of The Chicago Plan. The goal is to create a more competitive environment for borrowing money and attracting depositors. Technology enhances this capability and brings us closer to Community Financing by using decentralized platforms and crowdfunding.
If ARYZE defaults, user funds are backed by government guarantees. Both individuals and companies alike. Today, companies lose a lot of money or even go bankrupt when banks default. This has a detrimental social impact on the economy and causes great losses in the form of unemployment.
What is the difference between fractional-reserve and full-reserve banking?
The difference between fractional reserve and full reserve banking is the difference between a stable financial system and a house of cards.
An alternative to fractional-reserve banking is a system where banks are obligated to keep the full value of each depositors’ funds, ready for immediate withdrawal on demand.