I promise to pay the bearer the sum of Rupees..

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Skilled
Actual Rupee

Author of the above site would like to know what a 'Rupee' really is ?

In a fiat money system that meaning varies. All money really, is just IOUs with no value attached to it whatsoever.

But the interesting thing is that the system works, despite that fact :)
 
^I dont think so.. I believe RBI keeps certain amount of dollars and gold to back up the currency it is floating.. If there is no backup from RBI then why would the currency inflate or deflate..
 
Yeah, We read this in our Economics class.

mainly, System works becuase of Trust people have in a currency.

Till the trust is maintained, currency flows.

Like in time of wars, people usually convert their paper currency into more valuable material assets like land,gold etc

Hehe..i would stop now!

This is a Tech forum, not a GD on Eco:p
 
^^ It used to, not anymore. US certainly wont have even 1/10th of a gold reserve for the dollar it prints.

The deal is if India goes on a money printing rampage, it will devalue rupee to a significant effect. Primarily it depends on the forex reserves we have, as oil imports are in USD. Thats the primary reason US is a super power, its currency has a universal appeal. They can practically print away their debt, uptil the point some other super power ask its credibility etc..
 
spidy333 said:
^I dont think so.. I believe RBI keeps certain amount of dollars and gold to back up the currency it is floating.. If there is no backup from RBI then why would the currency inflate or deflate..
Click to expand...

But dollars are also a fiat currency. Gold is just another asset in the portfolio to hedge against devaluation of other currencies.

The RBI possessing all those assets is to control the exchange rate of the Rupee, by again either injecting or withdrawing said fiat currency.

The point is we (ie the world) have moved from a currency backed by something tangible to a system where it is not, and it all still works :cool2:
 
The amount of gold kept in reserves determines the value of the currency..The value of other currencies also determines the value..

Lastly, the value/price of gold also determines the value..

Thats how valuation / devaluation occurs, you sell your gold reserve...

Or if you dont have much gold / already sold, then your currency will be devalued...Which ever happens first:p
 
Gold was the standard... it no longer is. Though there are token measures like gold reserve, bonds and forex etc against which a certain amount of money is printed but they are no longer defining factor.

Right now the only yardstick is economic stability and that can be maintained only by supply-demand equilibrium. The amount of actual money in circulation depends on the health of economy and total productivity. If production is good, government will print more money to keep a balance. If production is down, the money in circulation (including printing of money) needs to come down so that it should not get devalued.

This is the only way to survive and maintain peace in the society. If government wants it can give a crore in cash to everybody tomorrow, but it will turn India into Zimbabwe as it will increase the supply (and hence inflation) while there won't be any goods to buy.
 
^agree, it not only depends on the gold reserve but cumulative on govt bonds and RBI misc reserves.
For this reason only illegal currency printing is an offense, if their an illegal 100rs in market then RBI has to pay from it's pocket.
 
There is no Gold reserve funda here as 90% of the worlds currency exists electronically.

Money is nothing but a piece of paper which is created when a Govt borrows money from a central banking system by issuing them bonds.
 
Exactly, and that's taking it a step further from pieces of paper to 'numbers in a computer'.

If trust is to be maintained by the public then so do govts. themselves have to hold reserves of the same.

The innovation, here is money does not need to be tied to gold or something tangible. A resource thats rare and could be better used elsewhere :)

leave Zeitgiest out of this, i'm not saying the current practice is wrong, on the contrary
 
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