Famously, during the Great Depression, a group of economists at the University of Chicago recommended the end of fractional reserve banking (the so-called “Chicago Plan”). There have been similar calls since the 2008–09 financial crisis10. Proponents of narrow banking have generally argued it should be imposed by regulatory fiat, rather than via some sort of nationalisation of deposit-taking by the central bank. An exception is a 1987 essay by the economist James Tobin11. To avoid relying too heavily on deposit insurance to protect the payments system, Tobin argued, the government should create what he called “deposited currency accounts” (DCAs) at the central bank. “I think the government should make available to the public a medium with the convenience of deposits and the safety of currency, essentially currency on deposit, transferable in any amount by check or other order.” There are two interesting points about Tobin’s proposal. One is that he made it long before anything like the “distributed ledger” was conceived (he suggested that DCA branches could be housed in post offices). Another is that he fell short of suggesting the wholesale nationalisation of deposit-taking: he thought there should still be room for commercial banks to raise deposits of their own and that they should continue to be insured12. One reason is that draining deposits from commercial banks is unlikely to be costless. In particular – and this is the potential catch with too widespread a CBDC – it might threaten their lending activity.

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