The Why and How of Abolishing the Fractional Reserve Banking System: A Modest Proposal<sup>*</sup>

This paper critiques the U.S. Federal Reserve’s institutional design and macro-financial results. Using statutory analysis, historical balance-sheet data, and comparisons with sovereign-money systems, we find that the Fed’s hybrid public-private structure channels monetary policy toward the profit goals of member banks rather than the broader economy. Interest-bearing money creation intensifies leverage cycles, concentrates wealth among financial asset-holders, and leaves taxpayers to fund repeated bailouts. We model a counterfactual full-reserve regime in which the Treasury issues debt-free sovereign money and commercial banks serve only as custodial intermediaries. The simulation indicates lower systemic risk, and steadier credit allocation. Getting rid of the Federal Reserve and putting the power to control the money supply back in the Treasury could make the economy more stable over the long run.