Reflections on full reserve banking and sustainability in a long term perspective

Following the financial and economic crisis, money and finance have become important issues on the political and scientific agenda. Discussions focus on the role of the financial system in relation to the emergence of the crisis, policies to cope with the crisis and suggestions regarding reforms of the system. Because of the need to cope with environmental, distributional and economic crises in combination, issues related to finance have also attracted increased attention among environmentalists and within the field of ecological economics. In this community, one of the most popular suggestions is to introduce full reserve banking (or related arrangements), but the idea meets with substantial criticism from some Keynesian economists who are also concerned about environment and distribution. The intention with this paper is to provide an overview of the main participants and the key arguments in the debate on full reserve banking and to discuss whether the proposal is useful from a sustainability perspective. It is also discussed whether other proposals are more promising, either as alternatives or in combination with full reserve banking, and what the potential is for political mobilisation based on different proposals. The paper is based on a combination of literature studies and interviews with actors, including a hearing carried out in Copenhagen in September 2014.