For the system to work, the sole creator of money must be the sovereign state. The fiat (or creation) of money by the banks could not be permitted, period. This is a byproduct of the fact they are within the economic ecosystem and there for in the creation of money the sole purpose of the bank (to the banker) is only to make a profit and in so doing removing money from the available purchasing power in the form of interest on bank fiat money. If bank fiats are allowed, the banks can and will inflate or deflate the unit of account as best fits their goal of profit independent of the financial needs and realities of the country. Another way of view this is that an artificially created money market bearing little to no relation to the cost of the service provided by the bank is represented by interest in its current form.
Now, banks could loan money. However they would be required to do so only with money deposited for that purpose which thus could not be fiat money but had already been in existence previous to the loan. That is to say, for loans in particular, they would be required to have 100% reserve. At the same time, banks would be required to keep money intended for commercial exchange during that financial period entirely separate from money intended for loaning. So what does the consumer pay for/how does the banker earn a living? The consumer pays for check/exchange and safekeeping; however, they would earn interest on money deposited specifically for investment purposes.
Thus removing from the hands of the bankers the ability to manipulate the money supply of the country is to their own gain. The Federal Reserve Bank is not a public bank. It is a private bank, owned by bankers for bankers. Ordinary citizens cannot make deposits or withdrawals from this bank but governments and banks can. The fact that banks can currently create money with a loan by the creation of the credit/debt gap it produces can effect inflation and deflation which seems counter to the “constitutional provision giving Congress the sole right to coin and regulate the value of money”. If banks were required to lend only money which was backed by 100% deposits for the purpose of investments, the creation of money by banks would stop.
Suddenly if you put banking in a different setting, think about Flexcar. The idea is that if everyone owns a car, they spend a lot of time sitting around doing nothing but using up resources because of all the parking spaces. Flexcar rents out cars at those times when people are not using them, while they are parked. If we all did this there would be less of a need for cars and parking spaces. There is a distinction between a “car” and “use of a car”. Banks do something similar. They rent out “reserves”, the kind of money the central bank makes, to give us “use of reserves”, which is what we commonly call money. What you are proposing is that there will be no difference between reserves and use of reserves. Is this what you mean?
It would be very hard to enforce. I created a few “use of pencil” out of a single spare pencil yesterday.
All that about the Federal Reserve Bank is true. We split the monetary authority from the fiscal authority (congress). It has resulted in lower inflation than in places where the two are closely tied like in the UK. The way that works with the congressional right is that the constitution says “coin”. The US Treasury still makes the coins; the Fed takes care of the rest.