The claim made in the Economic Textbooks that the central bank controls the banking system is mostly incorrect - in fact most of the things you'll read in economic textbooks about the banking system are provably incorrect which is a large part of the issues with current economic theory - and with economists employed by central bank attempting to control the banking system.

From an economics point of view, what they are essentially proposing is to modify the banking system so that it resembles their models.

Their models are stylised, highly simplified, and have to be massively "callibrated" in order to match economic observations at all, and even then can only usually do so between financial crashes. (The part of economics that analyses business cycles hasn't discovered the Nyquist theorem yet.)

The best guess at what would result of this, is all the problems of centralised control, and none of the advantages of the existing system. Another way to think about it is a bunch of complete maniacs being allowed to run experiments on the live production system without any testing.

Although hopefully it won't come to that.

Virtual worlds already deal in this level of centralization. It's not unprecedented and economists have gotten great data from studying those. They have persistent, naturally occurring interactions with real world macroeconomies via item trading. Long story short, it's absolutely within reach to reorganize finance to resemble game design. That doesn't mean it's risk free - but success is possible and even likely with due diligence.

No virtual world has loans, or a banking system. But I would totally support creating one that does and letting economists loose on that.

> Another way to think about it is a bunch of complete maniacs being allowed to run experiments on the live production system without any testing. Although hopefully it won't come to that.

You mean like NIRP and QE? -_-' Like you said, these guys live in an textbook economic fantasy world.

Exactly. And you think this is going to be any better?

This is not proposing the end of fractional reserve banking. Money supply expansion happens through credit, and credit isn't going away any time soon.

The problem is that the normal "transmission mechanism" of monetary policy is to encourage credit, and both the commercial world and consumers are in a state where they either don't want or don't need credit.