On Fractional Reserve Banking

In banking, when banks take a deposit from customers, they must keep a portion of it and not use it for lending, in case the customers need to withdraw their money. This portion is called the deposit reserve. The ratio between the deposit reserve and the total deposit amount is the reserve ratio. This kind of banking system is called the fractional reserve banking system.

What this implies is that banks basically have the ability to do what is called "money-printing". As an example: let's say a country's reserve ratio is 10%, then if you deposit $100 into the bank, the bank can lend out $90 to others, and charge them interests for it. If that customer deposits the $90 he just borrowed, then the bank can lend out %90 of that again...

Continuing this process, the $100 you first deposited basically created a total of $900 additional dollars. This hasn't even taken into account where the interests the bank charges will come from. But, where did the extra $800 dollars came from? In reality, this money doesn't really exist, it is just debt incurred on the people, in the form of decreasing purchasing power due to inflation. Not to mention, if all depositors try to withdraw theri money all at the same time, the bank won't be able to pay them. This is known as a "run on the bank".

Under this kind of system, who is most benefited? Of course it is the bank. Basically they don't really need to do much, just lend out money that doesn't belong to them in first place, and they can generate returns. In fact, whoever has the ability to print money can steal in stealth. The difference is when they do this it is called "expanding the money supply", but if you do it it is "counterfeiting".

By the way, the reserve ration in Canada is zero. What does this mean? Maybe we can gain some insight from the following quote:

"Give me control of a nation's money and I care not who makes the laws" -- Mayer Amschel Rothschild