Explain why merchants accepted gold receipts as a means of payment even though the receipts were...

Explain why merchants accepted gold receipts as a means of payment even though the receipts were issued by goldsmiths, not the government. What risk did goldsmiths introduce into the payments system by issuing loans in the form of gold receipts?

answer should be 300 words

Expert Solution

The traders when started to make the transactions in gold they realised that its been difficult to carry gold making it inconvinent and unsafe. They thought its better to deposit their gold with goldsmiths who would carry it in their vaults taking their required amount of free and it will be safe also. On recieving the gold from the traders , the goldsmith issue them the deposit receipt of gold. Very soon people started paying for goods in goldsmith receipts and which turn out to be first paper money. Merchants started accepting this reciepts from goldsmith as they knew they cound exchange it anytime for gold or they can reuse it for puchase of goods and services.

The risk which introduced was suppose if the goldsmith issue the Paper money more than the reserves in his account , then he would be unable to convert the paper money into gold for the people who are standing in front of him to convert paped money into gold.

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Rahul Sunny answered 1 year ago

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