The Phaserl


Fractional reserve bullion banking and gold bank runs – the setup

by Bron Suchecki, Gold Chat:

I finished yesterday’s post on central bank transparency with a statement that the stability of the fractional reserve bullion banking system and its gold run-proofness depends on the extent to which central banks have lent gold physically or only via book entry to bullion banks.

First a recap on bullion banking. Unallocated bullion bank accounts are fractionally backed, no different to fiat banking. Indeed most unallocated accounts are, as it is impossible to offer a 100% backed account with no storage fees unless you are a physical user of gold like the Perth Mint. However, the refiners, jewellers, or coin dealers that offer 100% backed unallocated do not amount to much relative to the total unallocated held globally.

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