Finance and Capital Markets
In the Finance and Capital Markets Topic, under the BANKING playlist, BANKING 12: Treasuries.
Sir says that bank notes are issued by the Reserve Bank but are an obligation of the government. He mentions, if, at some point, all people want their bank notes to be exchanged for gold, and the Reserve Bank defaults, the government will pay back all their gold equivalent of bank notes. My question is how is it possible? How can the government create more gold out of nowhere?
And second question, he says to develop people's trust in the bank notes and not the gold being the actual currency, government has to gain the trust of people and it will do so by taxing people. I don't understand how does taxing people will lead to people trusting their government and in bank notes as the actual currency.
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