"As time went by, some banks developed a reputation for probity and honesty. This led to merchants, who had accounts with these banks, simply transferring receipts of these banks when they had to pay one another. This led to these receipts functioning as "paper" money."In some time, people running these banks also figured out that their depositors do not all come on the same day asking for their deposits back. So, in the intermittent period, they could loan out the deposited money to others for a fee. They could also simply print fake deposit receipts not backed by gold or silver, but which looked exactly like the original deposit receipt and lend that money out."
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Bill Bonner is founder and owner of Agora Inc., one of America's largest consumer newsletter publishers. Best-selling author and globe-trotting correspondent since 1999 for the Daily Reckoning email, he is chairman of family-wealth advisory Bonner & Partners, and co-author with his son Will of Family Fortunes: How to Build Family Wealth and Hold Onto It for 100 Years (Wiley, 2012).
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