[headShrinker]

> Even when countries were on the gold standard, they still had fractional reserve banking. If a troy ounce of gold was $100 , the bank had one ounce of gold and three separate people had a $100 bill, any one of them could go to the bank and get the gold, as long as not all of them did.

Fractional Reserve is easier to understand as debt than as an asset. A bank is given $1000 from a central bank. The bank can now loan that $1000 with interest for a total of $1100. The bank is allowed to loan that debt promise at a fraction reserve rate of 7-1 or 5-1 as loans to other customers. The $1100 promise can be loaned as $800 plus interest for the total loan value of $880. That can then be loaned out as $660 including interest. Then $440 can be loaned out. Then $220.

So the original $1000 from the central bank was used to create $3300 worth of debt.

Money is created using debt promises.