Analytical Framework for Sovereign Money? Some Insight from the 100% Money Literature

The 2007–2008 Global Financial Crisis has brought renewed interest in the 100% Money reform idea of the 1930s, the essence of which was to require 100% reserves on transaction deposits to separate money issuance from bank loans. A modern version of this idea, the Sovereign Money proposal, has been much discussed in recent years. Some heterodox economists have harshly criticized Sovereign Money advocates for lacking a clear analytical framework, as well as for disregarding “established” literature on such topics as the causality relationship between money and prices, the accommodation of business needs, financial instability, or the seigniorage privilege. The literature on 100% Money, however, appears to have been largely overlooked by both sides of the debate—even though, as this article shows, it could have brought valuable insight to the discussion. Building upon the arguments of the 100% Money writers, this article concludes that many of the criticisms addressed to the Sovereign Money proposal are either inconclusive or misplaced.