Non-Fractional Reserve

Definition ∞ A non-fractional reserve system refers to a financial model where an institution holds 100% of its depositors’ funds in reserve, meaning it does not lend out any portion of those deposits. This contrasts with fractional reserve banking, where only a percentage of deposits is kept in reserve. Such a system aims to eliminate the risk of bank runs and ensure complete liquidity for all deposited funds. It promotes financial stability by guaranteeing asset backing.
Context ∞ The concept of non-fractional reserve is highly relevant in discussions surrounding stablecoins and central bank digital currencies (CBDCs), where full backing is often proposed for stability. Key debates involve the operational feasibility and economic implications of such a system, particularly regarding its impact on credit creation and monetary policy. Future developments may see increased regulatory requirements for full reserve backing for certain digital assets to enhance consumer protection and systemic security.