I Promise to pay the bearer

Take any currency note and have a look at it. You will find wordings similar to this.

“I promise to pay the bearer a sum of….”

500 rupee note

So what does this mean? It means that the reserve bank of the country (in other words the Government) promises that the person who possesses the currency note (i.e the bearer) will be eligible to be paid goods worth the amount mentioned on that currency note.

But what will the bank get in return for assuring and making that payment? :) To answer this we have to go back a bit in history, to the origin of the currency notes as we see them today.

Of course in US dollars, it would be “This note is a legal tender for all debts…”.


The ” Will pay to bearer on demand ” which was present in US dollars earlier vanished from it in 1934 and was replaced by “This note is a legal tender for all debts…” !!!

Will pay to the Bearer

A 1918 US dollar note.

In other words, the dollar note is just a legal tender, meaning all US banks will accept it, but other than that, nothing is promised by the US Federal Reserves about its value. In fact Federal Reserve is NOT Federal i.e it is NOT owned by the US federal government , nor does it have any independent reserves. It is just a group of private banks working with the US treasury department.

It all started…

In ancient times precious metals like Gold and Silver acted as the currency. Which is why we see that the ancient coins were made of precious metals. And there was no need for anybody to make a promise about the value of a Gold coin because the coin in itself contained precious Gold, unlike today’s paper currency.

I promise to pay…

And then came the promissory notes, which were the ancestors of today’s currency notes. Here, people used to deposit the precious metals they had with a trustee who in turn used to issue them a promissory note mentioning in it the worth of the Gold it represented. Then anybody who gave this note to the trustee would get back Gold worth the value mentioned in that promissory note. The trustee in turn would charge a small amount to the people for safeguarding their Gold assets.

Slowly instead of using actual Gold to purchase goods people started using these promissory notes instead. Different denominations of these notes came into existence. These were the initial days of currency notes, which is why even today you see on our notes a promise by the reserve bank (today’s trustee) about the value of that currency note. But then today these notes are NOT supported by Gold or any other precious metal. Howz that possible? Read on…

The promissory notes became popular because it meant carrying a simple piece of paper instead of heavy metals. It not only reduced the carrying burden, but also protected people from thieves who could otherwise easily detect that you were carrying Gold/Silver.

Over a period of time the trustees observed that most of the people who had deposited the Gold with them were not coming back to take back the Gold, and instead simply kept circulating the promissory notes, much like today’s currency notes. So the trustees thought why not issue more promissory notes than the amount of the Gold reserves they had? And thus was born the concept of modern currencies and the banking system.

Deposited money exits through backdoors

Banks in those days simply issued more promissory notes than the amount of Gold they had, based on a simple faith that all their depositors wont come and demand their Gold back all at the same time! Imagine a bank which had 100 kg Gold in deposits and which had issued promissory notes for 200 kg of Gold. If all its customers came at the same time demanding their Gold back, then the bank would go bankrupt! But that doesn’t happen unless and until the bank loses the faith of its customers. So based on the faith that the overall amount of Gold withdrawn would always be little comapred to the overall amount of Gold deposited, Banks started overstating their Gold deposits.

What the banks did with those extra promissory notes was to lend loans and earn interest. This is how the banking systems as we know today came into existence. And this is what is practised by banks today in the name of fractional reserve banking . In other words, the banks today keep only a fraction of the customer deposits in reserves, and lend out all remaining money as loans to earn interest. The interest on the loans would be more than the interest paid by the banks for your deposits and thats how banks make profit. Your deposits are nothing but loan offered by you to bank for which bank pays a small interest, and in turn lends that money to others for a higher interst rate.

So if the borrowers don’t pay back the loan amount, then your money is gone! And that is what is exactly happening in US today in the name of Sub-prime crisis. Borrowers have defaulted, banks have gone bankrupt and so have the investors! Lehman brothers was just an example, and AIG was bailed out by the US Government because it was too big to be allowed to go bankrupt! The current US subprime crisis threatening the global economy is nothing but Banks being unable to recover the billions of dollars of depositors’ money which it had given out in the form of Bad loans.

And how does the US Government bail out big bankruptcies? Simply by printing more dollars !In fact Billions of it!

The question is why can’t other countries simply print more of their currencies and be rich? Because there will be no takers for mere paper. Currency being a piece of paper has to be supported by something which is really valuable, like the earlier Gold system. So what is supporting the US dollar then? Read on…

Post World War II – US Strategy

After the second world war most of the world economy was devastated. Most of the world’s Gold reserves had ended up in US as all countries required US help to rebuild themselves, the same way they needed US weapons prior to that. It should be noted that US mainland was not at all affected by the second world war and there have been conspiracy theories about Pearl Harbor, the same way there have been conspiracy theories about 9/11 . UK had been the world leader till then, but now was desperate for help after the devastating world war. It had enough of its own business to mind and hence declared independence to countries like India which were becoming unmanageable and which had already been looted to its core by the British. The empire on which the Sun never set had started shrinking to see its Sun setting. Britain’s prominent industries had been destroyed by the war and it badly needed aid. It wasn’t able to import more than half of its food and all raw materials, probably except Coal.

At the same time US had the ambition to replace UK as the world economic power. At the end of second world war there was already great inflation in US and there were strikes in all major US industries like automobiles, steel etc. So US desparately wanted unhindered access to markets across the world to get cheap stuff to fuel its own economy. US agreed to give a loan worth 3.8$ dollar to UK provided it entered into a new trade agreement with US. And thus was born the Bretton Woods agreement which paved way for the creation of IMF, World Bank and laid foundation for the world domination of the US dollar. Prior to this agreement US and UK combined controlled over half of the world’s trade, and this agreement ensured that US entered UK markets. It should be noted that if not for the devastating effects of world war II on british economy, the british pound would have been today’s dominant currency. It was infact a dominant currency in the world prior to world war II.

Bretton Woods Agreement

US entered into this Bretton Woods agreement with UK and rest of the world nations after the world war in 1945. According to this agreement all member countries had to trade their currencies against US dollar instead of against Gold or other currencies, and US dollar itself was promised to have a fixed value in terms of Gold. In other words, by this agreement US dollars became the new promissory notes of the world economy! So a country need not worry if it didn’t have enough Gold to support its currency, all it had to do was to buy US dollars, because US promised its dollars to be supported by Gold!

Now, what would a country do when it had a currency deficit? Well, it can take loans from the newly formed IMF and World bank(then known as IBRD), which would obviously be in terms of US dollars. In return for this loan IMF (on behalf of US) would set up rules and regulations on that country’s economy, so as to favor the US (in the disguise of helping that country overcome its crisis) and would put that country’s economy under IMF surveillance. The US owned one-third of all IMF quotas, more than enough to impose its rules and to veto any change it disliked in the IMF.

To pay back the IMF loans (in US dollars) a country had to export its goods and services to US so as to earn US dollars. Even otherwise, countries wanted to earn US dollars since it was the default global currency for international trade in the non-communist (non-soviet) block. So all countries started selling their products to US for cheap prices, since they had competition amongst themselves. This ensured that US got best of the world products for lowest prices. And in the process US economy and consumerism boomed because they got cheap goods of great quality from all across the world! Pegging of world currencies to US dollar ensured that the value of US currency remained stable and hence there was no inflation in US and things became available for throw away prices. That’s how US consumerism was fuelled and continues to be fuelled even today.

While in the third world countries people think a thousand times before throwing out something, in US it is the world’s largest amount of garbage produced everyday, simply because in US its cheaper to buy than to reuse. Things are(were) cheap in US at the cost of the rest of the world because rest of the world compete(d)s to sell their goods to US, just to earn US dollars, since it was supported by Gold. In other words US dollars had the greatest purchasing power, thanks to the Bretton Woods system. In return for making this agreement happen, US gifted its european friends with its Marshall Plan , where in the european countries received aid in terms of grants instead of loans to rebuild their economies. US offered a similar Marshall plan to the communist states led by USSR but was rejected by the Soviets who were well aware of US ambitions to dominate the world economy.

Nixon Shock

All this went fine till one day the flaw in the system came out. US had created a Pax Americana system in the world, where every developing economy had this goal of exporting its goods and services to US to earn more dollars. US continued to print dollars left and right and kept distributing it to all countries to fuel its hungry consumers. But then according to the agreement the dollar was being supported by a promised denomination of Gold. But printing more dollars is not same as mining more Gold! And hence insufficient supply of Gold broke the system.

While US dollar had a fixed value against Gold which was artificially set just to enable US to print more dollars, the price of the Gold in the open market was much higher than the Gold supported by an US dollar! In other words, if Gold of amount x was available for a dollar, the same Gold x cost 3 dollars in the open market!

This meant countries could now use their piled up US dollars to get back cheap Gold from US government (since US had promised fixed amount of Gold to its dollar according to the Bretton Woods agreement), and then sell it in the open markets for higher prices! Just imagine all the countries that had kept piling up US dollars, now opting to give it back all, in return for the promised Gold. Well, this happened on March 17 1968 (along with violent protests in London the same day against US involvement in the Vietman war) and US looked blank! Where is so much Gold? US had Gold reserves to support only 22% of the dollars it had printed so far! What about the rest, and obviously US cant give away all its Gold and go bankrupt on its own either. :)

Thus came the Nixon Shock in 1971 on 15th of August when the then US President Nixon simply refused to pay Gold for US dollars anymore! He didnt even consult IMF before announcing his decision. In other words, entire world economies collapsed since their millions of dollar reserves were worth nothing more than a bundle of paper! If any other country had done this to US, then US would have nuked it out of existence, but since it was the great military power of the world that had defaulted, all other countries had to keep quiet.

Once the US refused to pay Gold for its dollars, the world entered a floating exchange rate system, where the markets decided the exchange rates based on demand and supply principle for currencies. While the US dollar was supported by Gold, other currencies were held weak in respect to US dollars so as to facilitate cheap imports to US. Now that the US refused to pay Gold for its dollars, its economy came down as other countries stopped buying its dollars since it was no more than a piece of paper now. So to boost US economy, US had to now export goods instead of importing them. Gone were the days when US could buy anything and everything just by printing more dollars. So, Nixon heavily devalued US dollar to allow US exports to other countries, so that US economy could get a boost. He even imposed 10% import duties so as to discourage cheaper imports which would harm local industries.

Enter Petrodollar

But how long could US be without a strong dollar? Absence of a strong dollar meant US would have to compete with other countries on an equal floor and dollar would no longer be a dominating world currency. This would remove economic US advantage in the world since there would be no demand for US dollars across the world, and if there is no demand to US dollars then why will countries prefer exporting their products to US only? And if that doesnt happen then how to fuel US consumerism?

It should be noted that it is the consumerism that fuels more buying which in turn fuels innovation, provides funds for further research and hence leads to growth of science and technology.

So between 1972 and 1974 the then US president Nixon held a series of meetings with Saudi Arabia, the world’s largest oil exporter, and struck a deal where in US would provide technological and miltary assistance to Saudi, and in return Saudi had to trade its oil exports only in terms of US dollars. Now this resulted in two major advantages for US. One, all countries which import oil have to pile up dollars, since only dollars are accepted by oil exporting countries. This was because once Saudis agreed to trade oil in terms of dollars, even OPEC (the organization of petroleum exporting countries) agreed to trade oil only in terms of dollars. So oil importing countries again started to trade with US and started selling their goods and services at throw away prices just so that they could earn dollars to enable them to buy Oil. So all oil importing countries started to build up dollar reserves, and this boosted US consumerism, bringing back the world currency status to US dollar, this time supported by Petroleum instead of Gold, and hence the term Petrodollar.

The second advantage to US from the petro-dollar was it could simply print more dollars to buy the oil it needed, and hence petroleum became available in US at throw away prices, and this is what made owning private cars almost one per head, cheaper in US. Without petroleum being not just affordable, but cheaper, there was no way that a giant automobile and airlines industry could have come up in US. Now that the US dollar is losing its value again, the effects of increased petroleum costs on US roads is becoming evident.

As described in earlier articles Iraq was invaded simply because Saddam Hussein had started accepting Euros instead of dollars to sell Iraqi Petroleum. This was a master blow to US economy and hence Iraq was invaded. The WMD which Saddam had was none other than Oil. After US invaded Iraq and dethroned Saddam the first thing it did was to revert back oil exporting currency of Iraq to dollars. Similary Iran is being threatened by US not because it has started Uranium enrichment programme but because it has started accepting Euros instead of dollars. Similarly Russia has started accepting its own Roubles instead of dollars to boost its own economy. Venezuela is also switching to Euros to export its Oil.

Iran, Venezuela and Russia account for about 25% of world oil exports, and if they do away with dollars, then there is a serious threat to dollar stability, and would lead to serious inflation and recession in US. UAE central bank has said that it will convert 10% of its dollar reserves to Euros. Even Kuwait and Qatar have hinted at the same. Sweden has brought down its dollar reserves from 37% to 20%. If there are no buyers for dollars, why will countries export their goods to US, what will they do with the dollars paid to them?

Biggest threat to US economy today is China which is sitting on world’s largest dollar reserves. If it releases those billions of dollars it holds in its reserves, then US economy will simply collapse. At the same time, the dollar reserves are a threat to China itself, for if dollar value comes down due to some other reasons, then Chinese collection of dollars would be mere paper notes. Slowly the ground below the internation dollar shaking, and shaking violently . It simply means US will have to go for a major war to bring back the world economy into its hold again. The target can be Iran, North Korea, Pakistan, anything and it has no ideological basis. It is the military might which fuels the economic might and vice versa. When one is under threat, use the other to recover. Its as simple as that.

What Promise?

By the way, today’s paper currencies have no inherent value in them. Even though the Reserve Bank promises to pay the value mentioned in the notes, consider inflation. What you get for 100 Rupees today, if you have the same 100 Rupees three years from now its value will be less worth than what it was when you earned that 100 Rupees. So where is the promise? What is the promise all about?

Note that your money is not supported by any Gold or Oil. Its just a piece of paper. The moment you earn money convert it into something which has real value. For instance, buy Gold or invest in real estate. Because these things have real value in them. If you just end up saving your 10000 Rupees in a bank account, 5 years from now its value would have reduced due to inflation and would be worth probably only 7000! Understand the economics of money and play safe. Dont save money as cash, other than for the minimum amount required to face any eventual emergencies.

  • Lavanya Pawan

    Really good.. loved the article very much.

  • N.KD

    Thanks for this good piece of knowledge

  • Vijay Naik

    But as mentioned above,”‘the dollar note is just a legal tender, meaning all US
    banks will accept it, but other than that, nothing is promised by the US
    Federal Reserves about its value”. Then how is the value of dollar justified to rupees (xx Rs = xx $)??

    • Mohammed Munawar

      When india gained independence from britain the value of one rupee was one one american dollar. Meaning in a fixed exchange rate system one indian rupee was equal to one american dollar. But after independence india was economically bankrupt, the britishers looted our country, and nehru had to take loan from world bank. World bank agreed to give loan to india on a condition that india will devalue its currency. Now devaluation means “decrease in the value of currency in a fixed exchange rate system”. After india agrees to devaluation result would be say for example we have to spend rupees 10 to get one dollar . So the indian currency would be 10:1….i.e. spend rupees ten to earn one american dollar. And only succesive indian governments know as to how many times we have approached the world bank for loans and how many times we had to devalue our currency. As a result of this today the value of our currency is somewherr Rs. 69 against one american dollar. last but not least currency is currency whether it is redeemable or promisory.
      I hope what i said is understandable to you. Thanks.

  • Nikunj Sharma

    Articles here can turn any naive into a a sharp bookman.

  • Lamthai Long


  • Dhriti Malakar

    Excellent article!

  • Anu

    Very nice, informative and coherent article. Good job well done

  • chris

    guruji, could u pls tell me about fiscal deficit reason for our country….thank you

  • MB

    Great article, right down to the basics of economy

  • mani

    its a good article in the world economy every person is must know that……. Thanks of lot

  • radhakrishna

    Actually i m finding abt currency importance to explain ti my students i got more than i expected keep it up….

  • Rohit Ahuja

    Excellent article! All the points are clearly and coherently stated. Thanks for enlightening us with the knowledge.
    Good work. Keep up.


  • swarooop

    super article loved it..! can’t stop reading till end of it.very nicely explained

  • Thiyagesh

    Excellent article.!! Wel explained.. One doubt. What does “the country (China) releases its dollar in reserves” mean. Why it needs to do that. What is the benefit.

    • itzguru

      China has a huge amount of dollars in its reserves which it earned by its exports. If it releases them all into the market, then the value of dollar will fall because of too much supply which is dangerous for US economy. So China can virtually blackmail US on this point.

      • Thiyagesh

        Thanks a lot mate for clearing the doubt:) Expect more articles from you. Keep up the good work.

  • kV

    Wicked Article mate !!

  • Rishabh Pandey

    lucid explanation…. very articulately formatted, even a no brainer can understand, but one thing, just increasing the demand of your currency is the main mantra, then why didn’t the Saudi’s traded in their own currency Riyal. This would have made Saudi Riyal indispensable for world economy and benefited them the way US were. Saudi’s could have had all the technology and military power with this. I see how US quickly in span of 1-3 years of Nixon Shock signed a deal with US but how is that the Saudi’s missed this inherent advantage of their large reserves if they hadn’t agreed to it.

    • itzguru

      That is something which I fail to understand even today, why are Oil rich countries continuing to accept dollars.
      But just by getting money one cant become like US. US has a system where talents are allowed to make the max out of their potential without having to worry much about funding, resources, infra etc. Every cant become US just by having more money, that attitude is required.

      • Kathirvel

        Other Oil producing countries couldnt compete with USA since, they are only rich in one or two resources (except USSR, but lost its shine after it was broken down, so Russia went to take care of its own deal), and were not able to start a strong background work for the economy just like USA.
        Moreover USA has a Geographical advantage which is being gradually corroded due to the globalisation of the world.
        But it is high time that the Dollar will lose its shine and countries will look for alternate resources (Hydrogen fuels, Renewable resources or something more modern technology) and exchange values other than Dollar.

    • Nitin Goyal

      I think somewhere in those meetings, US might have hinted what it can do to Saudi, if they didn’t obey what US commands. Iraq war is a message to all those oil exporting countries, that they do exactly as US says or bear the consequences. One thing I don’t understand why UK is an ally of US in these wars. There must be something in it for them.

  • cencbl

    This analysis is too simple, does not explain a lot of things like the Dollar is the dominant currency because people have more faith in the stability of US system than their own. Otherwise there is no reason for the Govt. of China to keep Trillion+ dollar reserves.

    • itzguru

      What stability is there in US system? It has been consistently surviving by printing more dollars. It imports too much that what it exports, so where is the balance?
      China has dollar reserves for political reasons, they can make US economy go for a toss if they release all those dollars. Its a lose-lose situation if they do that, but nevertheless its an extremely powerful political weapon.

      Dollar is acceptable for the simple reason, all countries either export oil or import oil. Everybody needs oil. And dollar is the major currency used to buy and sell oil. So those countries who buy oil, will export everything to US so that they can get more dollars to buy the oil.

      Any major oil selling country which trading in currency other than dollar has been taken to task by US – first it was Iraq, now Iran.

      • Zed

        Would the same hold now compared to when you wrote this? USD is doing pretty well while INR is sliding making oil imports into India more expensive.
        While what you say with relationship of USD to oil is true, it is more about belief that the guys running the fed and the US government will do the rational, right thing for their country that is keeping up the demand for USD.
        The opposite holds for INR. There is no faith in currency markets that the custodians of INR will do the right thing for their people. How else can one explain their actions of clamping down on gold imports precisely when gold is at its lowest against the dollar?

        • itzguru

          Right, US has done everything it could politically, economically, militarily, scientifically to keep dollar the currency in demand across the globe, no matter how much of it is printed by them. India on the other hand has a weaker currency today because of a sleeping government without undertaking any economic reforms.

      • vm

        The stability in the US government comes from the guarantee that it will not be taken over by a tyrant or some other type of system of governing. This also guarantees the the monetary system will not be suddenly and arbitrarily changed.

        People in the US believe strongly in their freedom to vote and to have their say. It would be extremely difficult for someone to violently take over the US and take way these freedoms held so dear. At least, they wouldn’t be able to take over for long.

        I think it is a natural human state to desire freedom of thought, speech, the press and the freedom to vote and have one’s opinions counted. Once a country gets to that point, it is very difficult to go back – like putting that proverbial genie back in the bottle. A taste of freedom is all it takes.

        So, herein lies the stability of the USA.

        Wonderfully written article! I would love to hear what you think about bitcoins – and if you think that maybe primecoins are even better.

  • Bighnajit

    There is one thing which I dont understand.. If the dollar valued had decreased and Nixon stopped giving back the gold reserves,and no country was interested in accumulating dollar reserves, then y did the saudis trade those mere paper for its oil deposits. What the saudis could have done with the valueless dollar.????

    • itzguru

      I dont know, but it happened, and continues to happen even today. Dollar is the major currency in which oil is traded. In Iraq Saddam Hussein tried bringing in Euro and US targeted it. Iran tried the same and is being targeted!

      • provin

        if iraq started to export oil in euros then it could be beneficial for those countries which uses euros as their national currency, then my question is why that countries did not support iraq when US attacked there??

  • GRS

    Thank you very much! Very good article , well written and clear. I am a school teacher and I am going to share this with my students.

    • ajay vaja

      boy your students are gonna be so mad at you!!!

  • Vaibhav

    what an article!! u told me something that i never would have imagined to know by myself..
    thanx a lot!!!

  • ajay

    that nixon shock was the master piece f the article,if all the other countries of the world had joined and fought against u.s.a the entire u.s. economy would have collapsed.

  • Gokul

    Brilliant article. Thanks a ton.

  • Hamed

    Couldn’t stop reading it until i finish…..very well explained in common language. :)

    • Anonymous

      Thanks Hamed :)


    Really an awesome simple explanation. Thanks a lot…..But then I wonder what would happen, when the world is depleted of all its gold, or the oil (may be the break down point)…

    • Anonymous

      Well this situation already happened in 1971 when US stopped backing its currency by Gold because it had already stopped being a viable system. The current paper money is backed by nothing but a promise “I Promise to pay the bearer” as seen in the Indian Rupee notes. In case of US dollar, even this promise is no more there, and it is just a “legal tender” whatever it means :)

  • Videvdv

    pretty neat explainable..

    • Anonymous

      Thanks Videvdv

  • Suhaib1thariq

    nice article..thanks alot for explaining in clear

  • Sandhya83

    One of THE BEST articles on economics I have ever read. Everything explained in terms very easy to understand.

    • Anonymous

      Thanks Sandhya.

  • Diabolic

    This article is absolutely perfect!

  • TheTradeReader

    amazing article…hats off !!

  • Girish Pai

    Excellent explanation of a complex phenomena ……..thanks a ton……really enjoyed reading it …..

    • Anonymous

      My pleasure Girish :)

  • SZHAssan

    Thanks Guru, this is really an excellent article on paper currency but the same time I also request you to write on this main culprit of all economy i.e “Interest”. 

    • Anonymous

      Sure SZHAssan will write sometime on interest too

  • Kumarvaibhav2003

    thanks for this valuable information dear.

    • Anonymous

      You are welcome.

  • Ranganath Subramani

    Amazing article man! Bookmarked..

    • http://www.hitxp.com Gurudev

      Thanks Ranganath :)

    • Anonymous

      Thanks Ranganath :)

  • Swayam Narain

    Amazing article. Bookmarked. I have always wondered what was really meant by this ‘promise’ on every note I have. Your views on USA manipulating its way as a world power were very informative, as well as somewhat instigating.
    Thanks! Keep up the good work!

    • http://www.hitxp.com Gurudev

      Yes the promise is to pay the bearer the amount, but does not promise what that amount can buy over a period of time. Today if I have a 100 Rupee note and can buy an item A for that, next year the item A might cost much more than that. What I mean is that the promise is just about a number (100 Rs), and NOT about the value of that number (unlike Gold)

      • Lamthai Long

        What if the fake currency distributors baselessly promise like the post-war U.S. Will it provide any economic advantage to the nation?

  • Dman


    Learn to give some credits. You talk here as if you authored the whole damn article, when most of it is clearly plagiarized from things like “The Venus Project” etc.

    • http://www.hitxp.com Gurudev

      Yes I have authored this article and I take strong exception against the term “plagiarized”. If I start plagiarizing then I can post dozens of articles every day :)

      In fact many of my articles have been copy pasted in numerous blogs, and in these days search engine spiders are intelligent enough to punish sites with copy-pasted content and I leave it to that.

      The tone and style of this article is mine, and the facts mentioned here are collected from external sources. And I have linked to all the sources of my facts well within the article. Getting facts from some book or website is not plagiarism, copying content is.

      By the way this is one of those articles on which I spent hours writing it. Hope I have cleared the air :)

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  • sivashankar

    this awesome… everyone is shedding the light. thanx all.
    i have a question now… so the indian rupee backed by US dollar, which is a floating currency now and not backed by gold… means that, both indian rupee (promisory notes or paper currency) and US dollar is just a mere paper and worth nothing?
    another question is…  wat if all us return these notes to RBI  at once and demand the relevant currency or value of the promisory note?
    and … how much percentage physical money is actaully circulating in india ?
    thanx for the post and all the discussion.

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  • Alex

    Great article! It’s very good explained and easy to understand.

    • http://www.hitxp.com Gurudev

      Thanks Alex!

  • Reackon

    Indeed its a good point and i thank you for educating as most people dont have a broader vision. But your point is very good. I would like to know what India  can do to boost its economy in the next 5 yrs.


    • http://www.hitxp.com Gurudev

      Thanks for your comments Vijay. Well, if you ask me few main things India should do to boost its economy in the next 5 years would be
      1. Spend on building world class infrastructure all over the country and mass public transport systems in highly populated cities.
      2. Invest heavily on alternate energy resources reducing dependency on oil imports
      3. Build efficient R&D centers and encourage companies to make India high end technology exporter
      4. Make all government institutions, public service departments electronic and the status trackable to remove corruption. All government works should be computerised and web enabled and no paper work
      5. Privatise all public sector companies. Government should not do any business, it should only regulate business.

  • http://pvjoshi.ca Prakash Joshi

    Excellent article, Gurudev,

    Here’s a prize winning documentary about a Tamil Naidu Bank Manager on how Banking should really be carried out compared to the curruption and greed we see in the west. It did not matter whether the banks did well or not the employees were paid well. When the banks did poorely, they were bailed-out by the tax-payers and the bonuses still did not vary significantly as the profits diminished, the bank chiefs, especially still got paid heavty bonus.
    Obama has a big chalenge ahead, to get some off this money back, 90 billiion dollars bonus to claim back from about four banks in ten years.
    J S Partthiban, a bank manager in South India, with help of his family brings about a change to assist those who need the most, people in some of the 800,000 villages.

    • http://www.hitxp.com Gurudev

      Thanks for the link Prakash. An excellent initiative.
      The entire modern economics needs a revamp. From interest orientedness towards social development. From commercial, pharmaceutical funded medical industry towards the concept of Vaidyo Narayana Hari where both rich and poor get equal and fair medical treatment, From donation oriented educational business towards Gurudevobhava where literacy gets replaced with true education and creating quality students is done by quality teachers.
      Hopefully all this will be achieved slowly but steadily as a mass initiative.

  • Mudassar

    Superb buddy!!!!!!!you cleared many doubts that were behind my end.

    • http://www.hitxp.com Gurudev

      Thank you very much Mudassar :)

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  • bobby

    Simply brilliant!! It answered many of my questions. Thanks for writing such a wonderful article.

    • http://www.hitxp.com Gurudev

      You are welcome bobby. I had tried to make the explanation as simple as I can :)

  • vikas

    Thanks Gurudev for writing this wonderful article.

    • http://www.hitxp.com Gurudev

      My pleasure Vikas.

  • http://www.sanskritonline.com Gokulnk

    Thats a good article except for the conclusion that is made. At the end you say that investing in gold and real estate is wise. I beg to differ on that point. Anything that is overvalued is always riskier to invest in. Hence a healthy mix of all the investment instruments will be a better option. And moreover keeping cash reserves may not be a bad idea if you have it in more than one currencies, which have negative correlation. Hence having your cash reserves in your native currency, Euros and Dollar may be a better option.

    • http://www.hitxp.com Gurudev

      Gold and real estate are the least risky investments with guaranteed return. Both are always in great demand and both are natural resources whose supply is limited and hence if you look at their overall graph the prices always are going high. Especially Gold has more guarantee than real estate because real estate might sometimes depend on the area and might get affected by factors like shifting away of major industries which gave the land its current value etc, but gold is always the best investment and its the only investment which most countries forex reserves trust and which the ancient kingdoms having been trusting throughout history.

      • Rupam kalita

        Excellent article gurudev. But can you please explain why the value of gold has depleted recently ?

        • itzguru

          The main reasons are the bulk selling of Gold by the banks of European nations which are facing severe economic crisis, decreased demand for Gold in China which is one of its largest consumer, and some analysts talk about a desperate effort by US Federal Reserve to scare people away from Gold towards US dollars. All these compounded together have caused a fall in its price.

          Please read http://www.hitxp.com/articles/economics/gold-investment-price-fall-good-returns-economy/

  • http://shashidhar26.blogspot.com/ Shashidhar Shenoy

    Ultimate article!
    You have elaborated the issue very well and the final message is a real eye-opener. This is one of the best articles related to finance that I have come across in recent times.

    • http://www.hitxp.com Gurudev

      Thanks Shashidhar :)

  • sameer


  • Chris


  • http://www.hitxp.com Gurudev

    Thanks Chris.