FICTIONAL RESERVE BANKING
GPT-4 on Inflation-Fueled Bank Runs
Imaginary Internet Money Showdown: Crypto vs. Government-Issued Currency
I asked AI: Explain how a bank run shows the fractional reserve system is a Ponzi
A bank run does not necessarily show that the fractional reserve system is a Ponzi scheme, but it does reveal some of its vulnerabilities. The fractional reserve system and Ponzi schemes are fundamentally different, though they share some similarities.
The key similarity between a fractional reserve system and a Ponzi scheme is the reliance on a continuous inflow of funds.
The fractional reserve system is a banking system in which banks are required to hold only a fraction of their depositors’ money as reserves, allowing them to lend out the rest. This system is a widely accepted practice in modern banking and helps create credit and stimulate economic growth. However, it can lead to liquidity problems if many depositors demand their money back at the same time, which is what happens during a bank run.
A Ponzi scheme, on the other hand, is a fraudulent investment operation where…
