The fractional reserve system of banking started when goldsmiths began
A) accepting deposits of gold for safe storage.
B) charging people who deposited their gold.
C) using deposited gold to produce products for sale to others.
D) issuing paper receipts in excess of the amount of gold held.

Question

Quizplus · Accepted Answer

The fractional reserve system of banking started when goldsmiths began issuing paper receipts in excess of the amount of gold held. This allowed them to lend out the excess receipts at interest, which created more money in circulation than the gold reserves would have allowed for. This practice eventually evolved into the modern banking system, where banks keep only a fraction of the total amount of deposits as reserves and lend out the rest.

The Fractional Reserve System of Banking Started When Goldsmiths Began