Not to speak about the dangers of having the economy artificially limited by some external factor. US commitment (and Britain's return) to the gold standard did not help the Great depression; it helped fuel the world crisis by an artificial shortage of circulating money. Deflation and a stagnant economy for a decade were the consequences.
Every time that a bank lends money, in effect it is creating money: as long as the bank is not forced to keep reserves that balance the loan, this "new money" will circulate and fuel the economy. There are some marginal economists (e.g. our own Huerta de Soto) that call for a 100% reserve for every loan; it is another variant of the "let us go back to the gold standard olden days" fallacy. Such a measure would almost certainly lead to a credit crunch of monstruous proportions and paralyze the economy immediately and for centuries. In fact, I sometimes think that the reason why Arab countries fell behind Europe in the 15th century, after having lead the world for a millenium, is that the Quram forbids lending money at interest; while Venetian lenders were inventing modern banking. But I digress...
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