Abstract

In the current fractional reserve banking system, new money is created when banks give loans, and banks' lending decisions determine the total quantity of money that circulates in the economy. It is the root cause of instability in the global economy, and the vicious circle facing poor economies like that of Pakistan. Interest payments are eating up around 60% of government revenue. Within debt servicing, the bigger issue for Pakistan is that of the domestic debt being provided by the banks as 90% of interest costs are for servicing domestic debt. This system has to be replaced with the Hundred Percent Reserve System (HRS) by separating deposit banks from financing/investment entities to create a stable economic environment.

Keywords

Money Creation, Reserve System, Islamic Banking and Finance