IT IS NOT EASILY UNDERSOOD THE BANKING SYSTEM: MANISH KUMAR

In 1933, the banks lowered the value of the rupee by canceling the gold standard. Now what we consider as a rupee is actually a bill or promise letter, which does not cost more than paper.

It is written on it that I promise to pay the holder five hundred rupees. The government guarantees RBI.

We have seen that the Government of India is written on one rupee note and  rest of the note is written on the Reserve  Bank of India.

 As much as gold is, is more value notes are printed. But even more than that, by printing paper notes, RBI runs country's economy on the basis of promises only.

Before 1933, every citizen was confident that he would go to the bank with the paper notes in his hand, then he would get gold or silver on the basis of the value.

Let's see an example:- When you deposit one lakh rupees in the bank, the bank keeps 10% of it and gives the remaining 90% on the loan and earns interest.

 Suppose that the person who takes the loan is a businessman by purchasing goods. They borrow money deposited from others, spend is purchasing goods , earn profits by selling the goods and return the loan with interest.

 Out of interest, the bank gives a small portion to those who deposit the principal amount, keeping the rest as their own expends or other things or profits.

 That is, 90 thousand rupees roamed in the markets and then returned to the bank. Then by keeping the bank 10 percent, the rest pays 81 thousand rupees on loan. Earns interest on it. The cycle goes on...