Abstract

This paper traces the recent debate over the legitimacy of maturity mismatching and fractional reserve banking. It shows that there is common ground between Bagus and Howden :399–406, 2009, 106:295–300, 2012) on the one hand and Evans on the other regarding contractual arrangements that lead to fractional reserve banking, while both agree that fractional reserve banking that arises out of a bailment or storage contract constitutes fraud. Block and Barnett :711–716, 2009, 100:229–238, 2011) stress the illegitimacy of fractional reserve banking for creating more money substitutes than there is actual money. While it is true that fractional reserve banks are capable of creating money, this activity still cannot be regarded as fraudulent using a common law definition of fraud for it can only take place with requisite client collaboration that makes it impossible to identify a victim