The amount of this excess is expressed as the "reserve ratio" and is limited by government regulators not to exceed a level which they deem adequate to ensure the ability of banks to meet their payment obligations.
Under this system, which is currently practiced throughout the world, the money supply varies with the quantity of legal reserves and the amount of credit issuance by banks.
Walter Block argued fractional reserve banking inherently artificially lowers real interest rates and leads to business cycles propagated by excessive capital investment and subsequent contraction.
[17][18] A small number of critics, such as Michael Rowbotham, equate the practice to counterfeiting, because banks are granted the legal right to issue new loans while charging interest on the money thus created.
[19][20] These critics claim that this system causes economic activity to depend on the actions of privately owned banks, which are motivated by self-interest rather than by any explicit social purpose or obligation.
Michael Hudson criticised existing global financial institutions such as the World Bank and International Monetary Fund for reinforcing debt dependency.
This may enable the setting of interest rates to be less susceptible to political interference and thereby assist in combating inflation (or debasement of the currency) by allowing the central bank to more effectively restrict the growth of M3.
[42][43] Henry Liu of the Asia Times Online argues that monetary reform is an important part of a move towards post-autistic economics.
Both these groups (those who advocate the replacement of fractional-reserve banking with debt-free government-issued fiat, and those who support the issuance of repayable interest-free credit from a government-owned central bank) see the provision of interest-free money as a way of freeing the working populace from the bonds of "debt slavery" and facilitating a transformation of the economy away from environmentally damaging consumerism and towards sustainable economic policies and environment-friendly business practices.
[47] Paul Hawken suggests wholesale reform of money and currency, based on ideas from green economics or Natural Capitalism, would be beneficial.