Gold is Heavy | Where is my Money? Not in the Bank

#economics #money #gold

It would be inconvenient to carry around gold if the transaction is too large. It has a high value to weight ratio, but carrying around a valuable metal can be dangerous. There is a marvelous solution for these issues. The money can be exchanged for a substitute. You can deposit your precious metals which will be backed by a money substitute. Those money substitutes are exchangeable on demand.

The use of money substitutes can take the place of gold—or other metals—entirely. The substitute can take the form of a banknote. That’s exactly what happened. That’s how cash and coins emerged. They can be redeemed by the banking institution anytime these substitutes change hands. The substitute is a claim on demand so long as the money is available. Banks have had the habit of issuing more claims to money than what’s available.

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