Comparison of the Current Monetary System and the Full Reserve System by Agent-based Models
Abstract:
Financial crises events trigger numerous regulatory responses and give rise to proposals with the aim to reduce the vulnerability of the financial sector. One direction of the proposals has been the limitation of credit and money creation power of commercial banks. The mentioned proposals were about to give the right to create money exclusively to the government or to other public monetary authority. In this study two agent-based models are designed in order to compare the different monetary regimes. Results: the current monetary system is unstable and the banks’ perception about the economy’s future prospect is crucial, but has the potential to allocate the resources optimally, while a central authority cannot have all the information required to allocate the resources so well and performs suboptimal but in a much more stable way. Besides, the model of the current system can grasp the complex features of the financial markets.