from Gold Money:
The Cyprus crisis has exposed a perception problem at the heart of modern finance. Everyone has a bank deposit and regards this as their property: a form of warehousing if you like. In reality of course – as many gold and silver owners are acutely aware of – banks operate on a fractional reserve basis, whereby your money is loaned out in order to generate interest profits for the bank (as well as you).
A bank deposit may be your asset, but it is the bank’s liability. This is in contrast to say, metal held at GoldMoney, which is no one’s financial liability. The problem is that people assume a GoldMoney-style business-customer relationship exists between banks and their customers with regards cash deposits.
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