yonetici | On 14, Eki 2014

ENTROPY INCREASE THROUGH MODERN MONEY CREATION OF FRACTIONAL RESERVE SYSTEMIN BANKING

CIE44 & IMSS’14 Proceedings, 14-16 October 2014, Istanbul / Turkey, Pages: 717-722
ENTROPY INCREASE THROUGH MODERN MONEY CREATION OF FRACTIONAL RESERVE SYSTEM
IN BANKING

B. Gültekin Çetiner 1 and Mete Gündoğan 2
1

Department of Industrial Engineering
Marmara University, İstanbul, Turkey
drcetiner@gmail.com
2

Department of Industrial Engineering
Yıldırım Beyazıt University, Ankara, Turkey
mtgundogan@gmail.com

ABSTRACT
Money is simply treated as one of constraints when engineers solve their problems throughout
different layers of a system engineering processes without usually questioning the effect of
modern money creation in their problems. However, almost all engineering efforts are directed
and affected by this modern money creation system of Fractional Reserve System (FRS), causing
the entropy increase in all economies due to globalized world.

Vast majority of money in modern economies is created by private banks through a set of
processes called Fractional Reserve System (FRS). In order a bank to be able to create money,
someone is needed to borrow from this bank. In FRS, private banks keep only a small fraction of
money given them by their depositors and lend out the remaining. Hence, the amount of money
created in an economy depends on the fractional ratio of money to be kept usually kept in
Central Bank accounts.

This study shows how FRS causes the entropy increase in economies and suggests solutions to
overcome the problem.

Keywords: Entropy and Economics, Monetary System, Fractional Reserve System

FULL PAPER: imss14-cie44-180-ENTROPY INCREASE THROUGH MODERN MONEY CREATION OF FRACTIONAL RESERVE SYSTEM IN BANKING