As with trade in goods and services, trade in money (the means of exchanging goods and services) should be free – there should be no government involvement, save that which is consistent with proscribing force and fraud.
All banking should be private, with citizens free to use any means of exchange of their choosing, and any repository (Bank, Building Society, Finance House, mattress, sock, etc) in which to lodge it. Banks should be free to lend as much or as little of their reserves as they choose, on terms agreed to by them and their depositers and borrowers.
In a libertarian New Freeland, not only would the Reserve Bank Act be repealed, but the Reserve Bank itself would be disestablished and prudential regulations abolished.
For further reading, please see Larry Sechrest's Collectivist Banking and Robert P. Murphy's The Mystery of Central Banking, and George Reisman's two articles Profit Inflation by the US Government and The Anatomy of Deflation.
This is part of a continuing series explaining the concepts and terms used by libertarians, originally published in The Free Radical in 1993. The 'Introduction' to the series is here. Tomorrow, 'Bureaucracy.'