| Summary: | Abstract Following the traumatic experience of Iceland in the aftermath of the global financial crisis, the government is considering seriously a proposal to move to a sovereign money system under which commercial banks do not have the ability to create money by expanding credit. The rationale for such a drastic move can be found in the propositions that fractional reserve banking allows bankers to determine the money supply, that the procyclical behaviour of banks has detrimental consequences for the economy at large, and that the central bank has no power to control the money supply. Iceland, Fractional reserve banking, Soverign money, Financial intermediation theory, Banking regulation
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