The global arena has experienced several economic cataclysms since the inception of Fractional Reserve Banking whose monopoly revolves around interest which is oppugnant to reason and justice. John Maynard Keynes contended that without the abolition of interest, unemployment cannot be eradicated. Silvio Gesell castigated interest on the basis that his sales were more often related to the price of money (i-e interest) than people’s needs or the quality of his products. Gesell also launched “Stamp Script Movement” to make money a public service for a use fee but all his efforts went in vain. Commentator Willis L. Krumholz stated in The Federalist in July 2014 that we can continue these easy-money policies that cause inflation, enable excessive government spending, and engineer more bubble-fueled financial crisis, or we can allow interest rates to rise, which would surely plunge the economy back into recession.
Today, the world is in need of panaceas whose implementation can make a solid ground for interest free economy, global balance of payments and prevention of future economic collapses.
The major religions of the world deplore, condemn and prohibit interest in all its forms. The sacred books of Hinduism especially the Manu Smriti categorically express sentiments for contempt of usury. The Buddhist Jatakas refers to the practitioners of interest as hypocritical ascetics. The Old Testament speaks about the proscription of interest in the books of Deuteronomy 23: 19, Leviticus 25: 36 and Exodus 22: 25. Jesus (Peace Be upon Him) is quoted in the 95th verse of Gospel of Thomas as saying
“If you have money, do not lend it at interest, but give (it) to one from whom you will not get it back”
The Holy Quran prohibits interest in very explicit manner. The forbidding of interest in Holy Quran is mentioned in the Chapter of The Romans: verse 39, Chapter of The Family of Imran: verse 130, Chapter of The Women: verse 161 and Chapter of The Cow: verses 275-281. The prohibition of interest is also mentioned in the sayings of Prophet Muhammad (Peace Be upon Him). The Prophet (PBUH) said
“No matter how much is the increment accrued through interest, the eventual outcome is scarcity.”
The Fractional Reserve Banking (FRB) became a legalized form of economic sacerdotalism at national and international level after the establishment of Bank of England in 1694 and the foundation of International Financial Institutions (IFIs) in 1944. The era of this banking has affected the countries and humanity in form of national debt, money supply, buying power, business cycle, imbalance of payments, increased taxation, corruption and economic depressions. The FRB has been an incremental and instrumental tool in heaping up the external and domestic debts of various nations. The sad part of the story is the interest payments on those debts which add more to the holocaust and inferno. Pakistan paid $1,112,892,000 USD interest on external debt in the year 2014 only. The country allocated 1.168 billion rupees for domestic debt servicing in year 2015-16. Afghanistan rewarded $10,169,000 USD interest on external debt in 2014 according to International debt statistics of World Bank. The United States of America (USA) paid $430.8 billion interest on national debt in 2014.
The economists must ferret out an alternative for fractional reserve banking to save the world from the maledictions of economic pandemonium. The Chicago Plan and the Chicago Plan Revisited are the glorious masterpieces for abolition of fractional reserve banking and imposition of Full Reserve Banking. The substitutes also include Islamic Banking and Constitutional Monetary System of Lincoln. Furthermore, the International Financial Institutions (IFIs) should initiate interest write off programs for developing countries under a new initiative. In 1996, the IMF and World Bank sowed the seeds of the Heavily Indebted Poor Countries (HIPC) for a group of 38 developing countries. But the new initiative should include the interest write off programs for all the developing countries because it is the interest which is feasting on the flesh and bones of developing world especially those nations that are dependent on others and in which corruption and embezzlement are rampant. As far as the recovery of loans from developing and poor countries is concerned, it can be dwarfed by galvanizing the debt-equity swap method. Hence, it is concluded that the economic salvation depends on the total elimination of fractional reserve banking.