According to Antel Fekete, your view of fractional reserve banking coupled with Bills of Exchange is misinformed, unless your take on the issue has been misunderstood. Are you referring to “finance bills”, which are distinct from “real bills”. See below for the differentiation.
Per Antel Fekete:
The chimera of fractional reserve banking
This explodes the blanket condemnation of fractional reserve banking. Detractors are barking up the wrong tree. They should condemn the practice of discounting finance bills. ACTUALLY, 'FRACTIONAL RESERVE' AS APPLIED TO BANKS WITH NOTHING BUT REAL BILLS IN THEIR PORTFOLIO IS A MISNOMER. (emphasis added) The reserves are gold plus bills maturing into gold. The reserves are not fractional, as they fully back the note and deposit liability of the bank. By contrast, if the bank portfolio has a component of finance bills, the designation 'fractional reserve' is appropriate. Finance bills are not maturing into gold like real bills are. It may not be possible to get gold in exchange for them when the crunch comes.
The process of retiring bank notes, after the merchandise serving as the basis for their issue has been removed from the market by the ultimate gold-paying consumer, is called 'reflux'. Some authors, including Ludwig von Mises, have ridiculed the concept of reflux calling it deus ex machina. They argued that banks were only interested in credit expansion, not in reflux. Not for one moment would they entertain the idea of voluntarily withdrawing bank notes from circulation when the underlying real bill matured. Instead, they would lend them out at interest again and again, to enrich themselves at the expense of the public.
This is not a valid argument. For the stronger reason, you could also ridicule the entire legal system in asking the rhetorical question: "what is the point of making laws when they will be broken anyhow?" YOU CANNOT JUDGE THE MERIT OF AN INSTITUTION BY THE BEHAVIOR OF THOSE WHO ARE SET UPON DESTROYING IT. (emphasis added)
The entire discussion by Antel Fekete can be found at:
tinyurl com/REALbills (replace the space with “.” on the address line to access)