I think this is a good idea, and not just because the director said so. I've spent the last several days looking over our Reference holdings, and a great many of them don't really need to be kept in-house. A guide to terms used in Heraldry? An interesting read, surely, but not of such critical value that it can't leave the library. A bibliography of works on composers that was compiled in the 1960's? Also useful, but not current enough to mandate chaining it to the desk. Some things will of course remain as non-circulating. The Encyclopedia Britannica and the Oxford English Dictionary are not going anywhere. The 20+ volume set of the Birds of North America is staying put also. Some series of Biblical commentaries are staying put as well for the religion students. But, at the director's instruction (with which I concur) the bulk of it is getting turned loose. What we're going to be left with is, in my words, "a lean, mean collection that is up-to-date and highly relevant to our course offerings."
I haven't seen much in the professional literature about this idea, so maybe it hasn't caught on much yet. I hope that it will, as I think this will revitalize a part of our library that has long languished. Here are just two pieces discussing the idea of 'liberating reference'.
This link points to a blog post discussing the merits of allowing Reference books to circulate.
For those librarians who can access Library Journal, take a look at this article: (sorry, no link available)
Shift happens - Moving Reference to Circulation. Library Journal. 134.12 (July 1, 2009) p126.