In March 2020, amid the financial chaos of the early pandemic, the Federal Reserve quietly scrapped one of the cornerstones of modern banking: fractional reserve requirements. With little fanfare, the Fed ushered in a new regime—what it calls “ample reserves” (AR)—fundamentally altering how interest rates and liquidity are managed.

Under this system, the traditional requirement for banks to hold a percentage of customer deposits in reserve has been replaced by interest on reserve balances (IORB) and a suite of open-market operations. On the surface, it appears to be a technocratic shift aimed at stabilizing markets. In practice, it marks a profound expansion of monetary discretion with little public accountability.

For classical liberals and libertarians, the implications should be deeply unsettling. Historically, these thinkers sought to limit arbitrary government control over money while preserving trust and predictability in the financial system. By eliminating reserve requirements, the Fed has removed a natural brake on credit expansion—unleashing a framework that allows constant, largely unmonitored intervention in financial markets.

Libertarian economist Murray Rothbard, no friend of fractional reserves, would likely have condemned this new system with even greater fervor. He saw fractional reserves not just as an unsound policy, but as state-sanctioned fraud—a way for banks and central authorities to conjure money from thin air, thereby inflating credit and deepening national debt. Yet even he acknowledged the role of constraints. The AR regime, by contrast, operates without any pretense of limitation. It utilizes IORB to micromanage liquidity and enables precisely the kind of inflationary overspending that Rothbard warned against in works like What Has Government Done to Our Money?

Even more measured economists like Milton Friedman would find reason for concern. While less doctrinaire than Rothbard, Friedman maintained that the Fed should expand the money supply at a fixed, legislated rate to avoid the pitfalls of discretionary monetary policy. Predictability was the watchword. His fear—borne out over decades of boom-bust cycles—was that government would use its monetary powers to paper over deficits and distort capital markets. In Friedman’s view, even a flawed system with known parameters was better than one ruled by opaque discretion. He would have seen ample reserves not as a technical fix but as a doubling down on the very unpredictability he sought to tame.

Indeed, it should trouble Libertarians, classical liberals, and non-MAGA traditional Republicans alike that this system is not only discretionary but almost entirely unaccountable. Through a blend of IORB tweaks, bond sales, and repurchase agreements, the Fed now has the ability to inject liquidity whenever and however it deems necessary. These operations occur with minimal congressional oversight and little transparency to the public or bondholders. The AR model remains untested in the face of a genuine recession or sovereign debt crisis—and it raises serious questions. Would it provide enough transparency to reassure foreign debt holders? Or might it provoke rating downgrades and inflationary shocks? With fractional reserves gone, dollar creation has become further detached from the real economy—a decoupling that even Friedman might have viewed as dangerously centralizing.

This erosion of constraint invites a tantalizing question: could cryptocurrency offer a viable alternative? For countries weary of inflation or trapped in the orbit of the petrodollar, digital currencies might appear to offer a lifeline—decentralized, trustless, and not subject to the whims of unelected monetary authorities.

But here, too, the libertarian dream runs into hard reality. Austrian economists like Rothbard and Friedrich Hayek, whose ideas form much of crypto’s philosophical bedrock, would not have signed off on Bitcoin as sound money. Rothbard was a fierce advocate of commodity-based currency, rooted in scarcity and physical value. To him, digital tokens without intrinsic worth were no better than fiat dollars conjured by the Fed. Hayek, more open to innovation, imagined a world of competing private currencies—but insisted that each must earn and maintain public trust. On this score, most cryptocurrencies fall short.

Bitcoin’s volatility, lack of consumer protections, and vulnerability to speculative boom-and-bust cycles make it a poor candidate for stable monetary replacement. There are no structural safeguards against liquidity crises. No guarantee of solvency for crypto exchanges. No rigorous, transparent stress testing akin to what we (at least nominally) demand from traditional financial institutions. In the event of a run, there’s no central clearinghouse, no lender of last resort—just the hope that the market can absorb the blow.

Crypto may promise decentralization, but that doesn’t mean it promises durability. In abandoning one flawed system, we risk replacing it with another even more fragile. The libertarian challenge, then, remains unresolved. How do you build a stable monetary system that minimizes government interference without descending into chaos? The ample reserves model offers a short-term illusion of control at the cost of long-term unpredictability. Cryptocurrency offers decentralization but not trust. And the classical liberal ideal—a money supply governed by rules, not rulers—remains just that: an ideal.