“From a Christian perspective, one could consider the acceptance and spread of fiat money as a grave sin—a reflection of the flawed state of humanity, separated from God, and leading a misguided life. Fiat money stands for deceit, false testimony, and the insidious plundering of some by others.” – Thorsten Polleit, Mises.org, 1/1/2025

Modern financial systems—built on fiat money, fractional reserve banking, and inflation—violate God’s law, eroding stewardship and enslaving our neighbors through deceitful wealth transfers and dependence on these systems to provide our need for finance. Following the exposition of the Westminster Divines, this series seeks to expose these systems as sins prohibited by 8th Commandment and contrasts these systems with the duties imposed by the same commandment. By tracing money’s manipulation from central banks to market speculation, we uncover a system at odds with biblical principles.

Yet hope remains: the Infinite Banking Concept® (IBC) offers a practical path to reclaim control, give generously, and find peace, aligning our finances with God’s Word. Join us to explore why Christians must reject the ways of Wall Street and Jekyll Island and embrace a wiser alternative.

Part 1 of this series will lay the foundation of what money is, and explain Fiat Money, Fractional Reserve Banking and Inflation

Part 2 will carry this knowledge forward into an exposition of the 8^th Commandment according to the Westminster Divines

Part 3 presents the biblical alternative and concludes with some common questions and answers.

Fiat Money vs Commodity Money

Money does not have value in and of itself. Money is simply the most saleable commodity (Menger, 2009). As such, the value of every other good or service can be defined in units of money.  In America that unit of measure is the U.S. dollar.

A stockpile of gold or silver or dollars is only valuable because of what it can be exchanged for. For instance, the worth of 401(k) lies in its anticipated purchasing power during retirement.

For something to be used as money it must be portable, divisible, fungible, recognizable, and of limited supply.  For the purposes of this section, the focus is on the last characteristic – limited supply, or scarcity.

Today, every nation in the world operates with fiat money.  To have fiat money means the currency is declared to be legal tender and that it is not backed by any physical commodity. Its value is based on the public confidence and trust in the issuing government. The value of the dollar is manipulated through control of the printing press (physical paper and digital ledgers) and interest rates.

To have a fiat money also means to have an unlimited money supply (Tacanho, 2022), its quantity is only limited by changeable policy managed by a central bank, violating one of the necessary qualities of money – scarcity – and creating a false weight and measure.  When the interest rate and these policies are manipulated the rate at which banks can create money through fractional reserve banking is changed.

Fractional Reserve Banking: Finance Ex Nihilo

A pamphlet titled “A Day’s Work at the Federal Reserve Bank of New York,” published in 1951 by the American central bank, reads:

“There is still another and more important element of public interest in the operation of banks beside the safekeeping of money; banks can ‘create’ money.  One of the most important factors to remember in this connection is that the supply of money affects the general level of prices – the cost of living.  The cost-of-living index and the money supply are parallel.” (Mullins, 1993, p. 165)

The means by which banks “create money” is called Fractional Reserve Banking.  It is the system where banks are required to retain only a fraction of their customers’ deposits as reserves relative to the loans that they issue.

In order to understand fractional reserve banking, banks and banking must be defined and how fractional reserve banking came from demand deposit banking understood. 

What is a bank?  A snowbank is an accumulation of snow.  Similarly, a riverbank is an accumulation of soil on the edge of a river.  A bank (noun) is anywhere something is stored or accumulated. In the context of finance, a bank is where money is stored or accumulated.  Banking (verb) is simply the storage and movement of money through credit, loans, and repayment. 

Demand deposit banking is a system where money is stored with the bank and the depositor is given a receipt for the money.  Like leaving a car with a valet, the owner receives a ticket called a “demand deposit” or a check.  Instead of redeeming the receipt for money to go make a purchase, the depositor can transfer the receipt.  Today depositors can issue checks written for varying amounts as claims to the money in their accounts.

In a demand deposit banking system operating under a full reserve requirement, the number of claims receipts issued equals the amount of money being stored.  If a bank makes a loan, an equal amount is not available for withdrawals by the depositors until the loan is repaid (Lara & Murphy, 2012, pp. 75-88).

Under a fractional reserve banking system, the banks are able to issue more claims to money being stored than money actually being stored by the bank (Lara & Murphy, 2012, pp. 105-116).  Fractional reserve banking means the bank is only required to keep a portion of its liabilities (deposits) on reserves relative to the money it loans. 

In a March 21st, 1960 Congressional Hearing, Congressman Wright Patman (D-Tx) described fractional reserve banking this way.

“If I deposit [$1,000] with my bank and the reserve requirements imposed by the Federal Reserve are [10%] then the bank can make a loan to John Doe of up to [$900].  Where does the [$900] come from?  It does not come out of my deposit of [$1,000]; on the contrary, the bank simply credits John Doe’s account with [$900].  The bank can acquire government obligations by the same procedure, by simply creating deposits to the credit of the government.  Money creating is a power of the commercial banks” (Mullins, 1993, p. 167)

Under fractional reserve banking, the reserve is not an actual reserve, it is an accounting reserve – the difference between the bank’s assets (loans) and liabilities (deposits).

The bank, being permitted to issue loans in excess of the money it possesses, then charges interest on those loans.  The bank charges the borrower fees for using something it does not have.  In this, the lender is exchanging real earned money for fake inflationary money.

Now consider what John Doe does with the money.  He deposits that $900 in his bank, Bank C. From that deposit, Bank C is permitted to loan $810 to Jane Smith. The original $1,000 is still in the bank. The $900 John Doe deposited into his bank is still there. Where did this $810 come from?

From the original $1,000 deposit and within only two steps, an additional $1,710 was added to circulation in the economy.

This example is under a 10% reserve requirement under which banks in the U.S. used to operate under. However, on March 15, 2020

“…the [Federal Reserve] Board reduced reserve requirement ratios to zero percent effective March 26, 2020.  This action eliminated reserve requirements for all depository institutions.” (Federal Reserve Board, 2020)

This 0% reserve requirement is still in effect as of this writing.

To be fair, the banks are not out lending $900 for every $1000 deposited. At least not all at once. Inflation would be rampant if that was the case, and America would make the Weimar Republic look like it was on the gold standard by comparison. Instead, the banks are measured in how much new money in loans they actually create from the deposits they receive.

Under a Fractional Reserve Banking framework, banks lend money that does not exist. “Commercial Banks – that is, fractional reserve banks – create money out of thin air” (Rothbard, 2008). This increases the money supply and reduces the purchasing power of all other dollars in existence.  

Inflation: A feature not a bug

It may not be immediately apparent, but the act of securing a loan from a commercial bank directly contributes to inflation.

“The word ‘inflation’ originally applied solely to the quantity of money.  It meant that the volume of money was inflated, blown up, overextended.  It is not mere pedantry to insist that the word should be used only in its original meaning.  To use it to mean ‘a rise in prices’ is to deflect attention from the real cause of inflation and the real cure for it.” (Hazlitt, 1965, p. 2)

Inflation is rightly defined as “increasing the quantity of money and bank notes in circulation” (Shostak, 2025). The increase in prices is not inflation itself, it is the observed effect of inflation.  When Caesar clipped the coins or minted them mixed with baser metals in order to make more coins out of the same amount of gold, he was inflating the money supply.  When the people realized their coins did not weigh the same as they used to, they began to demand more coins for the purchases. 

As the amount of money in circulation increases, or is inflated, the purchasing power of the money decreases because there are more dollars chasing the same amount of goods. As purchasing power decreases it requires more money to purchase the same things and prices go up. 

Given their education and work experience, and analysis of the labor market, a worker might value his time at $50 an hour or $400/day.  Not because the money itself adds to his life, but because what he can exchange it for adds to his life. He believes one day’s labor is worth two weeks of groceries or one hour’s labor is worth 20 gallons of gas.  If two weeks of groceries cost $300, maybe he would be willing to accept $37.50 an hour, or if it cost $500 he would demand $62.50 an hour for his labor.  So he enters into a contract with an employer, exchanging his labor for an agreed upon wage.

As new money is created, those who receive it first benefit the most, making purchases with the new money under the purchasing power as if the money supply had not increased. In time, the market realizes that, as the result of inflation, there is more money chasing the same amount of goods and so prices increase. However, wages have not yet increased. What once cost one hour of labor now costs two hours of labor. Those who receive the new money last see no benefit and are instead hurt as the value is stolen from them.  The contract to work for a given purchasing power is violated, and wages are effectively stolen. 

“If one devalues the currency and the workers are not clever enough to realize it, they will not offer resistance against a drop in real wages, as long as nominal wage rates stay the same” – John Maynard Keynes

This concludes part one of this series.  In the second part, this will be compared to the sins prohibited and duties required of us in the 8^th commandment.

If you’re ready to secede from the evils of central banks and fractional reserve banking, or just want to learn more, click to book a free call with an advisor today.

Semper Reformanda

All content on this site is intended for informational purposes only and is not meant to replace professional consultation. The opinions expressed are exclusively those of Reformed Finance LLC, unless otherwise noted. While the information presented is believed to come from reliable sources, Reformed Finance LLC makes no guarantees regarding the accuracy or completeness of information from third parties. It is essential to discuss any information or ideas with your Adviser, Financial Planner, Tax Consultant, Attorney, Investment Adviser, or other relevant professionals before taking any action.