Which one of the following functions that goldsmiths performed was most important in the development of modern-day fractional reserve banking? Goldsmiths issued paper receipts to people who stored gold in the goldsmiths' vaults. Goldsmiths stored gold for people in their vaults. The paper receipts issued by the goldsmiths were accepted by merchants as a means of payment. By issuing additional paper receipts, goldsmiths made loans to people who did not necessarily have gold deposits.

Question

Guest

Social Studies

9 November, 21:55

Which one of the following functions that goldsmiths performed was most important in the development of modern-day fractional reserve banking? Goldsmiths issued paper receipts to people who stored gold in the goldsmiths' vaults. Goldsmiths stored gold for people in their vaults. The paper receipts issued by the goldsmiths were accepted by merchants as a means of payment. By issuing additional paper receipts, goldsmiths made loans to people who did not necessarily have gold deposits.

+2

Answers (1)

Know the Answer?

Hassan Wiley · Answer 1

By issuing additional paper receipts, goldsmiths made loans to people who did not necessarily have gold deposits

Explanation:

By issuing additional recipients on a paper, even people who had no gold deposit could reserve amount and get a loan. The gold itself was rarely taken as a loan, or it was taken in a small amount. Rather than taking it, the piece of paper issued by a Goldsmith - a recipient - was enough to ensure someone that fraction claim exists.

This is a method today practice by many banks and it is known by the name "fractional reserve banking".