Basics of Trading and Finance (Part 19) : Solution to the Problem of Fractional Reserve Banking with Cryptos (Is Gold Coin a Solution?)
Intro
IntroAs a moderator of the Tron Fan Club community, I regularly write various tutorials on crypto blockchain and Tron related matters. The main purpose of these tutorials is to make our new users aware of these topics. In continuation of that I am writing tutorials on trading and finance. Hope you can easily learn some details of trading and finance through this tutorial series.
In the last three posts I basically discussed the problems and gave you a hint of a possible solution through Bitcoin. Today I will discuss one of the most important options: Gold Coin Feasibility Analysis in a series of discussions. Those who haven't read the previous three posts should read the previous three posts to get an idea about the problems of the fractional reserve banking system, otherwise you won't understand today's topic well.
Gold coins were later introduced from barter system. The only disadvantage of gold coins was carrying them from one place to another. Large amounts of fiat currency could be pocketed but gold coins were too heavy to pocket or carry. Gold is one such metal that has had its uses since its inception. That is, the system of gold backup is considered standard in monetary system from the very beginning till today. Gold is a metal that has managed to retain its utility to this day, keeping gold as a backup so that fiat currencies can remain stable.
Now the question is if we remove the fiat currency and introduce gold currency again, will the current problems be solved? The simple answer is absolutely not. Assuming the central bank will no longer print paper currency, they will release it directly into the gold coin market. Suddenly the central bank will create coins in the form of gold, silver, and bronze coins and release them in the market. But in the traditional system, after the coin is generated, it will come to the hands of the people as it is supposed to. In other words, the same way a fiat currency reaches the hands of the people through the central bank through the government or commercial banks, gold coins will also reach the people.
Suppose 100,000 gold coins are minted for a country and given to the government at 10% profit. The government released it in the market of its country. But the bank which made these coins i.e. the central bank said that next year 110,000 gold coins will have to be returned because the interest here is 10%. Since only the central bank can create gold coins, it will not be possible for the government of the country to create new coins for other banks or people. So 10% i.e. 10 thousand gold coins will remain deficit at the end of the year. To meet this deficit, the central bank has to print 10,000 gold coins and give them to the market. But then there will be 10% inflation again on the gold coin. This is the main problem. That is, you have understood that it will not be possible to get a solution only through a gold based system. As the supply has to be controlled, the current interest based system of the gold coin market should also be eliminated. And that's why the best and best option we have is definitely cryptocurrency which I will discuss in the last post.
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