The Tale of Shivgarh’s Bank: Fractional Reserve Banking
In the bustling village of Shivgarh , life revolved around farming and trade. But one challenge remained—people had no safe place to keep their gold coins . This worried the village elder, Raghav, who decided to open Shivgarh Bank . At first, people deposited their gold with him for safekeeping, and in return, he gave them paper receipts . Soon, villagers started trading using these receipts instead of carrying heavy gold. One day, a sharp merchant named Arjun noticed something curious. "Raghav-ji, I see that not everyone comes to withdraw their gold at the same time. The gold mostly stays locked away!" Raghav nodded. “That’s true. People trust these receipts more than carrying gold itself.” Arjun had an idea. "What if you lend some of that idle gold to others who need it? Farmers could buy better tools, traders could expand their shops, and you could earn interest in return!" Raghav hesitated at first, but the idea made sense. He started lending out a portion of ...