2min snip

We Study Billionaires - The Investor’s Podcast Network cover image

TIP574: Broken Money 1/2 w/ Lyn Alden

We Study Billionaires - The Investor’s Podcast Network

NOTE

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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