Category Commerce

Centuries ago, when the concept of banking arose, cash transactions were made manually. That means that one had to literally meet the other and deliver money. Later the system improved, and money was transferred between accounts. Even so, a person responsible had to move around with money, and it took days to transfer.

          Today, if one wants to make a transaction, it will take just minutes, thanks to the Internet. Some of the most common payment methods involve technologies like debit card, credit card, and e-banking. And for people who are not familiar with Internet technology, there are ways using cheques or demand drafts that is DDs.

           In the case of debit and credit cards, money is transferred directly from the user’s bank account, to the one it has to be given to. For example, when you go shopping, you can pay the bills using these cards, instead of giving money. The money gets debited from your account and goes to the shopkeeper’s.

           E-banking also helps in the same way, where bill payments can be made online. For instance, while paying your phone bill, e-banking helps. 

        All of us may have at least once got bank-notes that are torn or soiled. Have you ever wondered what is done with such currencies? Let’s tell you.

        As per the rules set by the Reserve Bank of India or RBI, such currencies can be exchanged in any bank even if you don’t have an account there.

        The banks which accept these notes will later submit them to the RBI. The central bank would then categorize these notes. Some of them are reissued in good shape. But some others, which cannot be repaired, are cut into tiny pieces so that they never get back into circulation.

        This happens in the case of coins too. The reusable ones are issued again. The others are melted. 

        You must have heard about the concept of inflation from your parents or teachers. Let’s keep it simple inflation is a general rise in the price of goods and services.

        An example for this is the increase in petrol price. Till a few years ago, it cost less than Rs. 40 for a litre of petrol. But today, the price has reached Rs. 70. This rise is caused by inflation, because of which, the value of goods go up.

        This happens due to many reasons. Some of them can be sudden wars, high wages, uncontrolled spending by the government, or even that of families etc. But the impact falls hard on all of us. The prices of all things that you need in your daily life increases. That means, money more than what we already have, will be required to meet our expenses.

        The annual rate of inflation is usually calculated in percentage. If the rate is 5 per cent, it means the price of something is 5 per cent higher than it was a year ago. 

         Deflation is the opposite of inflation. It causes a decrease in the price of goods and services in a country. This in turn, helps consumers buy more than what they could before, with the same amount of money.

         So is deflation a good phenomenon? Absolutely not. One of the major problems caused by deflation is that it always leads to lesser demand for goods and services. So naturally, their production also goes down. With this, many people lose their jobs or their salaries get cut. This in turn badly affects the economy of that nation.

         Again, what is the use in having lots of money but not enough goods to purchase? So, when prices fall in deflation, it does not help people at all. Deflation occurs when the government reduces its expenditure or when the citizens start spending less. However, it is not as common as inflation. 

         The term ‘Swiss banks’ may seem familiar as they are often quoted in news reports. However, they are not always famous for the right reasons!

           We have seen that Switzerland is considered a stable country with an equally stable economic system. This inspires investors across the globe to make investments in this country.

           Yet another reason is the rule of bank secrecy that the country has maintained since the Middle Ages. That is, because of the privacy and protection given by the banks, details of an account holder cannot be accessed by government authorities. In some cases, the account holders are identified by certain numbers, and not even using names.

           It was continuously reported that banks in Geneva and Zurich served as safe places for corrupt people with hidden money, tax evaders etc., because nobody could track their accounts. It was as per the Banking Law of 1934 that Switzerland maintains secrecy in its banking system.

           However, recent changes in the bank rules have made things easier than before. However, Swiss banks are still not as transparent as those in other countries.

A bank run occurs when a large number of customers withdraw money from their accounts simultaneously, fearing that the bank may collapse. This creates a big problem for the institution, because mostly it keeps only a small fraction of its deposits as cash on hand.

Economists note that as a bank run progresses, it generates a momentum. More and more customers withdraw cash. Such situations can arise even from small rumours about bank collapse. In the worst case, the bank’s reserves will turn insufficient to cover the mass withdrawal. The bank is then destabilized and faces bankruptcy.

The Great Depression contained several banking crises, consisting of runs on multiple banks from 1929 to 1933.

Whenever a bank runs, people in other banks too start withdrawing money. On a large scale, this can affect the country. So, governments all over the world have taken measures to avoid this danger.