A 2012 IMF Working paper by Benes and Kumhof "The Chicago Plan Revisited " has this abstract, finding in favor of the Chicago Plan an all counts basically:

At the height of the Great Depression a number of leading U.S. economists advanced a proposal for monetary reform that became known as the Chicago Plan. It envisaged the separation of the monetary and credit functions of the banking system, by requiring 100% reserve backing for deposits. Irving Fisher (1936) claimed the following advantages for this plan: (1) Much better control of a major source of business cycle fluctuations, sudden increases and contractions of bank credit and of the supply of bank-created money. (2) Complete elimination of bank runs. (3) Dramatic reduction of the (net) public debt. (4) Dramatic reduction of private debt, as money creation no longer requires simultaneous debt creation. We study these claims by embedding a comprehensive and carefully calibrated model of the banking system in a DSGE model of the U.S. economy. We find support for all four of Fisher's claims. Furthermore, output gains approach 10 percent, and steady state inflation can drop to zero without posing problems for the conduct of monetary policy.

Interestingly, that paper even has a Wikipedia article but the only criticism mentioned there is from Austrians. I suspect however that the Chicago Plan couldn't be all that uncontroversial with mainstream either, as it would pretty much eliminate the fractional reserve etc. Has this DSGE model of Benes and Kumhof, validating the Chicago Plan with such rosy outlooks (10% improvement in output etc.) received any critical commentary in mainstream/orthodox sources?

I also found a paper by Dittmer (2015) about the topic (of full reserve banking) in Ecological Economics, but this journal is also rather heterodox. And another Sawyer and Fontana (2016) in the leading journal of heterodox economics... (N.B.: the article in Ecological Economics is probably in part motivated by the fact that the Green Party of England and Wales has incorporated this full-reserve banking proposal in their platform; strangely enough, the former paper doesn't mention this fact, but the latter one does.)


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On the Equivalence of Private and Public Money is a 2019 working paper by Brunnermeier and Niepelt that addresses this issue:

We propose a generic model of money and liquidity. We provide sufficient conditions under which a swap of private (inside) against public (outside) money leaves the equilibrium allocation and price system unchanged. We apply the results to Central Bank Digital Currency, the “Chicago Plan,” and the Indian de-monetization experiment.

This is their exercise:

As a result of these developments, debates about the “right” monetary architecture resurface and classic questions about the nature of money return to the fore. A key point of contention concerns the optimal balance between public and private money. Proponents of a strong government role fear that private money creation breeds instability and shifts seignorage rents from taxpayers to shareholders. In the “Chicago Plan” of the 1930s and the recently rejected Swiss constitutional referendum on “Vollgeld” (sovereign money), they propose to severely restrict or even ban money creation by anyone except the central bank. Less drastic proposals aim at electronic Central Bank Digital Currency (CBDC) for use by non-banks. Monetary authorities in countries such as Canada, Singapore, and Sweden currently evaluate the introduction of such “Reserves for All;” the Banco Central del Uruguay has successfully tested the model; and other central banks consider it.

Skeptics, on the other hand, warn of severe macroeconomic risks due to the replace- ment of private by public means of payment. In their view, a reduction of bank issued inside money will hamper credit extension by banks to firms and households, with negative implications for growth; and the introduction of CBDC will provide a safe haven asset for depositors to run into at the slightest hint of a crisis, rendering bank runs more likely and thereby threatening financial stability.

To assess these arguments, we develop a generic model of money and liquidity. Within this framework, we establish sufficient conditions under which it is irrelevant whether the public or the private sector issues means of payment.

They summarize their results as follows:

We apply our results to two proposals for monetary reform: CBDC, and the more drastic “Chicago Plan.” We find that the introduction of CBDC need not change macroeconomic outcomes, independently of whether deposits are subject to bank runs or not. If bank runs are a feature of the current system then the equivalent monetary regime with CBDC has state contingent transfers from the private sector to the central bank; if it does not, for instance due to a generous deposit insurance scheme, then no such transfers are needed.

Contrary to the prevailing view that CBDC would make bank runs more likely, our analysis concludes that it might well make them less likely. With pass-through funding, the central bank becomes a large depositor that internalizes run externalities, unlike small depositors. This makes the financial system less fragile. Regarding the Chicago Plan, we also find that the conditions for equivalence are met provided that banks receive appropriate compensation for lost seignorage rents, or that the ownership structure of banks is aligned with the distributions of tax burdens. An important motivation for the “Vollgeld” proposal to outlaw banks from creating liquid assets was that banks should be forced to relinquish these rents. This would transfer seignorage from bank shareholders to taxpayers, undermining wealth-neutrality.

We also apply our results to the recent Indian de-monetization experiment. We find that it could not have been neutral because cash-based transactions at black-market prices could not have been replaced by deposit-based transactions.

In contrast, there is a Bank of England working paper that strongly disagrees.The macroeconomics of central bank issued digital currencies by Barrdear and Kumhof (2016):

We study the macroeconomic consequences of issuing central bank digital currency (CBDC) -- a universally accessible and interest-bearing central bank liability, implemented via distributed ledgers, that competes with bank deposits as medium of exchange. In a DSGE model calibrated to match the pre-crisis United States, we find that CBDC issuance of 30% of GDP, against government bonds, could permanently raise GDP by as much as 3%, due to reductions in real interest rates, distortionary taxes, and monetary transaction costs. Countercyclical CBDC price or quantity rules, as a second monetary policy instrument, could substantially improve the central bank’s ability to stabilise the business cycle.


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