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TIP574: Broken Money 1/2 w/ Lyn Alden
We Study Billionaires - The Investor’s Podcast Network
Humanity's Transition to Abstract Money and the Two Types of Banking
As humans started using money, they preferred to have others hold their gold and issue paper receipts as a convenient form of exchange. However, this led to a problem when the gold holders realized that most people rarely redeem their gold. So they began lending out a small percentage of it, assuming that leaving a buffer would be enough. This led to two types of banking: full reserve banking, where the bank matches its liabilities and assets, and fractional reserve banking, where banks make conflicting promises and rely on probabilities. Fractional reserve banking is the more common type.
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