How does the fact that banks hold a fraction of their assets in a central bank put pressure on companies to grow exponentially? I'm curious, I don't understand the connection.
> How does the fact that banks hold a fraction of their assets in a central bank put pressure on companies to grow exponentially?
That is not what I would understand by the term "fractional reserve banking". Rather, fractional reserve banking refers to a system where banks do not hold enough liquid assets to cover their obligations. Central banks are completely irrelevant to the concept. The location of a bank's assets are also completely irrelevant to the concept.
But unfortunately? Without safety measures like the Fed enabling such, economies have a history of imploding every fifteen years or so on the basis of insufficient currency circulation. Oh wait, that's where we are today... Carry on!
Commodity-backed currencies also have a problem - they implement their own fractional reserves as economies do grow. When they shrink? End-users learn to trade in the notes for the commodities, shrinking the pool of currency in circulation.
Fractional reserve banking is one part of it, but the really horrible things occurred when we left the gold standard so almost unlimited debt can be created. People started investing in stocks instead of bonds, which is probably part of why Glass-Steagall was repealed.
