Stablecoins and the Era of Full Reserve Digital Banks

Banking is undoubtedly undergoing a reformation. Read more about how ARYZE envisions the future of digital payments.

Author: Carl Christian Jenster — Co-author: Morten Christorp Nielsen

Introduction

The earliest form of modern banking traces its roots back to the warrior monks of the Order of the Temple — also known as the Knights Templar — who first issued notes of credit to be redeemed by pilgrims venturing to the holy lands.

The concept was further refined by the Medici family in Florence during the Renaissance. However, the form of banking that resembles the current system can likely be traced back to the 1800s, where US banks became part of the Federal Reserve System and could lend out depositor funds to other customers in exchange for an interest rate.

Templars issued the first banking IOUs.

This was the birth of the fractional reserve system, which has become standard practice in modern commercial banking. Fractional reserve is a practice where banks can accept deposits and issue loans while keeping a reserve corresponding to a fraction of the bank’s liabilities.

While this practice enables banks to offer more services, it also demands that governments by necessity provide…