The next day, we gave the detective another $1000 to investigate a 100% reserve bank.
He walked into the bank and deposited $1000 to open a new account. The teller informed him that the bank charges a fee for the safekeeping of funds, so the account is not free. The detective winced a little, because nobody wants to pay for an account they could have for free at another bank.
Then the teller said, “We cannot move your money without your consent, but if you have no need to use all or part of your money for some time, you can loan it to us for that time period and earn some interest. You’ll get all of your money back plus interest.”
The detective decided to go for it. He deposited $100, or 10% of the money, and allowed the bank to borrow the other $900 for a year. The teller then put $100 in the vault and gave the $900 to a customer who wanted to borrow it to buy a new TV. Then the electronics store owner came back to the bank with $900, and decided to deposit all of it so he could have it on demand. He did not lend any of it to the bank.
The detective noticed that this looks a little bit like the fractional reserve banking, but there is one major difference: there is no money creation. The detective gave up the $900 for a year to the bank, understanding that he would not have access to it for that time period.
Over the next year, the money will be paid back by the guy who bought the TV and then the bank will give the detective the $900 back plus some interest.
In summary, the seller of the TV has not received new money in this case. The detective parted with it for a time, but will get it back later when the TV buyer pays down his loan to the bank. At the end of the day, the detective brought us four more conclusions.