Interesting Science

    Payment cards are one of the revolutionized ideas in digital payment. It had made the payment process a lot simpler. As in the before age, the  Barter system was used, in which goods are exchanged with other goods for trading. But later due to the difficulty in trading with the Barter system, another medium (gold) was introduced. Thus people used the gold to buy and sell goods between them. But due to the difficulty in transporting the gold for international trading, banks asked the people to deposit their gold in them and get an “ IOU”(I owe you)-a promissory note, as a proof of deposit. So whoever holds that receipt, can claim that gold in that locker. Thus trading happened between the merchants via the promissory notes alone. Till 1971, those promissory notes were backed up by gold. But after 1971, the gold standard was removed and the promissory note was made to stand alone, which we today call today it as fiat money. Fiat money When technology entered,...

    Payments are one of the feasible systems for buying goods and services. These payments started from the Barter system. As people faced so much difficulty in the Barter system, physical money was introduced, also called as fiat money. This fiat money was then later transformed digitally, from which electronic payments have got their role. Generally, payments are mainly classified into two types, namely Large Value payments and Retail Value payments. In our before topic, we learned about the  Large Value payment system and its process. In this article, we shall learn about Retail payments and their types. Retail payments are the type of payments, which is used for transacting smaller amounts in a country. Even though it is used for transacting very smaller amounts of payment, it is used by a large number of people in shopping, paying utility bills, entertainment, etc. Now let’s see about the various categories of Retail payments. Paper-based Payments In pape...

Barter System    Over the centuries, payments were made across the people, through the process of the  Barter system. In this system, things are exchanged with other things to complete the trade. But this method became inefficient when the person doesn’t want a thing he wishes for. Such that the person cannot trade with other people, in that situation. To eliminate this disadvantage, another medium (gold) was used in-between, through which trade can be placed, without giving any other goods. Thus people used this medium to trade between them. But over time, due to the difficulty and risky of transporting gold in large amounts, people have opted out of another method. It is called  paper money. This is where banks also came into play. Function of IOU People have started depositing their gold in the banks, for which they got a receipt (IOU- “I owe you”) as proof. So, instead of trading with huge piles of gold, people started to trade with these IOU’s. So whoever ...

          Money creation is a method followed by banks, to introduce some money into the economy. This happens when there is a  shortage of money or when the economy is slowing down.  Money can be introduced into the economy either by printing it (by purchasing bonds) or by giving loans, out of the deposit, or thin air. On the before topic, we had discussed money creation through loans, issued by commercial banks to individuals, which you can access from the below article. https://sciencetopic03.blogspot.com/2021/11/how-money-creation-is-done-in-economy.html In this topic, we shall discuss the money creation process, which is done by purchasing bonds. The process of money creation through loans, which we learned on before topic is fine, till there is no huge demand for money. If there is any such situation as huge demand or very shortage of money, then the central bank steps into action, to print more money. Every country has one central ban...

     Money creation is a method followed by banks to introduce some money into the economy. This happens when there is a shortage of money or when the economy is slowing down. Money can be introduced into the economy by printing it (by purchasing bonds), and by giving loans out of the deposit or thin air. One of the most followed methods that generate huge amounts of money creation is by giving loans. Let’s take a look at it. LOANS Loans are one of the best methods of introducing money into the economy. It is generally created by commercial banks without introducing new money into the economy. One of the popular loan methods which create money is Fractional Reserve Banking. It is the type of Banking, in which a portion of the customer’s deposit is maintained as a reserve and the remaining is lent out as a loan. Let’s figure that out with an example. Let’s say a person deposits $100 in Bank A. Now this $100 does not sit simply in the person’s bank vault; rather only...