A LONG READ...
You're welcome to skip



This piece was extracted from my red pill content here https://www.nairaland.com/8018973/secret-redpill-all-doubts-cleared


"So if i walk into a bank and deposit #1000 and say the reserve requirement is 10%, commercial banks by existing law of the land will keep #100 (10% of #1000) and loan out the #900 to customers in need of a loan"

This is the backbone of fractional Reserve Banking System.

But you might be tempted to ask, "if Access and Zenith and UBA loan out my deposits, how come i still have the amount i deposited still reflecting in my bank account"

XxxxxX


"Money dont grow on trees -- thats true because money grows faster than leaves on trees" --Micheal Maloney, Author and Monetary Historian.


What if I told you the commercial banks contribute to the inflation rate in the country in their own coded way.

What if I told you there's a solution... how I propose solving the problem

PART 1
The Beginning: False Education of the masses

Most bank customers believe that their money is lying somewhere in a wardrobe stored safely inside a bank
They believe that whenever they deposit money, the banks loan out the exact money they deposited to the next bank customer in need of a loan

While all of this sounds believable, NONE OF IT IS TRUE.


PART 2: THE FINANCIAL MISEDUCATION

FRACTIONAL reserve BANKING:

One of the major reason there's inflation in a country is because of the Central Banks/their Baby banks(commercial banks) and how they operate in a DEBT-BASED economy. Nigeria, like the United States and a host of other countries operate on a debt based economy system and in a debt-based economy, there has to be debt for money to be created.

(For easy understanding, I'll interchange CURRENCY with MONEY even though they're not exactly same)

All the money that is in circulation right now and has been was because someone borrowed it into existence AND every naira you have ever spent since you were born, someone was paying an interest on it. The money in your pockets right now, someone somewhere, a total stranger or your close family member, is paying an interest on it. Because what's in your pockets IS not entirely MONEY but DEBT

What am I saying

If ALL of Nigerias debt, as a Country, were to be repaid miraculously, there would be NO MONEY IN THE COUNTRY'S ECONOMY.
and added on top of the no money situation, THERE WOULD STILL BE DEBT circulating as interest on the borrowed loans as I explained here: https://www.nairaland.com/8069458/wealth-series-pt-2-nigeria

"By this means, government may secretly and unobserved, confiscate the wealth of the people and not one man in a million will detect the theft" --John Maynard Keynes

The naira notes in circulation only accounts for a small percentage of the total money in Nigeria and it's being used by market women, drivers, abokis, ATMs, you and I for our everyday transactions while the larger part is computer numbers bankers type in their computer

The large part of Naira circulating now is numbers in a computer, and all of this is because of Fractional Reserve Banking:

If every bank customer in Nigeria was to demand their physical paper money stored in their various banks right now, THERE'D BE A PROBLEM: the banks can't give them. it CAN NEVER HAPPEN cus THE BANKS DONT HAVE IT and there'd be a bank run which has happened before.

That's why cashless policy was introduced: To hide the fact that MATHS MAGIC was done on physical cash deposited by bank customers

Its all done like this. Quite simple.


PART 3: FRACTional RESERVE MONEY MULTIPLICATION

"If the Reserve Requirement is 100%, then the system is full reserve banking in which the bank has enough money to give to depositors if all of them come into the bank demanding their money at once. But IF the reserve requirement is less than 100%, its a Fractional Reserve Banking System -- all bank customers can't walk into the bank to physically demand their money back.THEY WONT GET IT"

There's always a reserve requirement (in percentage %) for every cash deposit a bank customer deposits. That is, banks by laws operating under fractional reserve banking are mandated to keep a certain reserve of customers money and loan out the rest. The money kept out of every customer deposit is called VAULT CASH.

Lets assume the Reserve Ratio in Nigeria is 10%

So if i walk into GTB and deposit #1000 and the reserve requirement is 10%, GTB, a commercial bank by existing law of the land will keep #100 (10% of #1000) and loan out the #900 to customers in need of loan

This is the backbone of fractional Reserve Banking System.

But you might be tempted to ask, "if Access, Zenith, GTB and UBA loan out my deposits, how come i still have the amount i deposited still reflecting in my bank account"

That's because when say a GTB customer need a loan from GTB, although GTB takes 90% from another customer account, it now replaces that 90% it borrowed in THAT SAME customer account with IOUs called 'BANK CREDITS'.


These Bank credits are Computer numbers 0s and 1s that even you can type if you were given the access to in a Banking System


and THAT IS JUST HOW new MONEY IS CREATED by the commercial banks: replacing borrowed money from a customers account with computer number money PENDING the time the borrower repays the loan given

This is a risk the banks take that's why they pay themselves in the form of INTEREST on loans

***And this risk is supposed to be reduced with the existence of BVNs linking to customers various bank accounts, but it seems LAPO and co hasn't gotten the update yet. If borrowers can easily repay their loans, the excess money in circulation is cancelled out. So interest rate on loans to be paid should be reduced while interest rates on loans to be given out should be increased. This alone will mop up the excess cash from the economy. This is why increasing minimum wage is not the answer...of which I'll discuss in another seperate topic***

In this case, the banks have Literally created #900 naira out of thin air WHICH CAN BE WITHDRAWN in any ATMs in Nigeria

Its quite scary learning about the commercial Banks mode of operation.

But thats until you find out how their Parents, the Central Banks, creates their own money LITERALLY out of thinner air. lolzzz

Now although these 'Bank Credit' IOUs are very different from physical cash because they only exist in computers, they are STILL currency

WHY

because you, the bank customer whose account was borrowed from and replaced with computer numbers called bank credits can still walk to an atm and withdraw this 'bank credits' AS CASH.

SAME WAY the borrower of your previously deposited money can also.

And now if both of you (the original owner of the bank account having the money the banks borrowed from and the borrower of your deposit as loans from a bank) were to walk into the bank at the SAME TIME to demand physical cash, the banks cant give it both to you...UNLESS it borrows ANOTHER MONEY from ANOTHER customers account. lolzzzzz

AND THAT RIGHT THERE IS THE SCAM OF THE BANKING INDUSTRY THAT OPERATES IN A DEBT-BASED ECONOMY: the commercial banks, GTB, Access, Zenith and co. do not count on both the original account owner and the borrower TO WALK into the bank demanding their physical cash AT ONCE!

Now this is just 2 bank customers alone. Now multiply this for 100,000,000 Nigerians owning bank accounts in these commercial banks and you start to see the BIG picture.

Nigeria Commercial Banking System does this, and so does the American commerical Banking System too

It's same for any country operating on a Fractional Reserve Banking System

"Commercial Banks create checkbook money whenever they grant a loan simply by adding new deposit dollar in accounts on their books in exchange for a borrowers IOU" -- Federal Reserve Bank Of New York - "I bet you thought" p.19

That is the deposit dollar/Checkbook money/Bank Credits. They are NOTHING BUT NUMBERS the banks type into their computer to make it seem like there is still money in your account after they have borrowed from it.

TA-DA! Hello People.

PART 4: PUTTING FRACTIONAL RESERVE BANKING IN PRACTICAL STEPS

We'll be using bank deposit of #1000 and a fractional reserve ratio of 10% for this example

This is what happens when you walk into the GTB, Access or Zenith to deposit your #1000 note.


1) Bank customer deposit money (#1000) in bank account.

2) Banks keep reserve requirements of 10% (#100) and loan out the remaining (#900).

3) Banks doesnt want the customer to know it has borrowed out the customers deposits so the keeps BANK CREDITS in place of the loan it borrowed out which in this example is #900. so the banks take out actual #900 from your bank account and replace it with #900 of computer money

By so doing, a bank credit / computer money of #900 HAS LITERALLY BEEN CREATED OUT OF THIN AIR to serve as actual money so you, the original depositor won't find out your money was borrowed. Money has JUST been multiplied

abra cadabra. lolzzzz

now this process is multiplied until you have BANK CREDITS BECOMING MORE THAN PHYSICAL CASH IN THE ECONOMY

Let's dive deeper

I'll give you a General Rundown using Access Bank for instance:

STEP 1: An access Bank customer deposits #1000.

STEP 2: #100 (10% reserve requirement) is kept and #900 is loaned out to another bank customer in need of a loan and access bank uses #900 of their computer money to replace the actual #900 they borrowed.

STEP 3: Now that borrower takes the loan and deposits it in his bank(which could be same bank, Access. The central Bank of Nigeria sets the Reserve Ratio and all commercial banks in Nigeria operates under it, so what happens in GTB, happens in Access) and #90(10% reserve requirement) is kept as vault cash and #810 is loaned out to another customer WHILE automatically, Access uses #810 computer money to replace the actual money they took

thats #900 + #810 = #1710 created out of thin air via Bank credits in form of computer numbers vs #190 actual Money!

and this process doesnt end here because that #810 can be redeposited again IF IT IS BORROWED!

so at the end of the day, you find out that if the initial depositor had deposited #1000 and the reserve requirements as stipulated by CBN is say 10%, then that #1000 automatically becomes: #10,000

using the formula, money multiplier= 1/ Reserve Ratio

= 1/ 10%
= × 10

so initial deposit X 10= Money in circulation

But the central bank, as of today May 2nd, 2024 uses a fractional reserve ratio of 45%

This means that any money deposited by any bank customer in any commercial bank be it Zenith, Access, GTB, OPAY etc WILL BE MULTIPLIED BY 2.2 (1/45%)

#1000 becomes #2,200

and the United States formerly as of date, operated on a reserve requirement of 10%

so

$1000 becomes $10,000
$10,000 becomes $100,000

but now, THE UNITED STATES DOESN'T HAVE A RESERVE REQUIREMENT so any money deposited in any commercial bank in the United States is multiplied TO INFINITY INFINITY

What spells excess money in circulation better than THIS!


Now guess what. This excess money in circulation isn't enough to trigger inflation at all, if not, Americans would have it worse than Nigerians, inflation wise

What triggers INFLATION in an economy IS WHEN these excess money being created by means of Fractional Reserve Banking ISN'T MATCHED with THE PRODUCTION of goods in the country SO the NEWLY CREATED MONEY via Fractional Reserve Banking then STEALS VALUE FROM THE OLD MONEY causing inflation, just as I explained here : https://www.nairaland.com/8049624/wealth-series-pt-1-inflation

This coupled with the fact that the plenty money created from fractional reserve banking IS CHASING THE DOLLARS all because there is no local production for most of the goods that are being imported with the dollar.

NOTE:
The dollar is also subject to fractional reserve banking so more dollar notes in circulation in the united states means INFLATION as these many dollar notes will steal value from the old dollar notes already existing IF:

1) the production of local goods in the US comes to a halt and

2) if the US stops exporting goods because by exporting goods, countries seeking to import united states exports would have to EXCHANGE their currency for united states dollar TO BUY US goods having a dollar value hence spreading the dollar far and wide

(so the Countries like the United States operating on a debt based economy and Fractional Reserve banking system IS SAFE because all the excess money they create out of thin air, IS ACTUALLY EXPORTED to other countries seeking to import goods made in the United States because they would have to change their country currency, whatever it may be, TO THE UNITED STATES DOLLAR.

THIS is why inflation rate doesn't increase in the United States compared to a country like Nigeria


but say if US relied only on imports say from china, the US would have to exchange their dollar for yuan. All good right

Until china finds out they cant do anything tangible with the united states dollar because the united states are not producing local goods and rely only on imports so the strenght of the dollar becomes weakened.

but thats not the case because although the united states rely on fractional reserve banking which multiplies money and causes inflation, they also have local production which also gives them goods to export hence codedly exporting their excess dollars when countries exchange to buy goods in the United States. So its all good for them unlike Nigeria with no local production and plenty of importation WHILST having only one primary good to export of which the government said they have sold their oil into the future.

What's the need of countries selling their official currency to purchase the excess Naira from fractional reserve banking hence making the Naira valuable


lolzzz. now you see it. the BIG picture

And what better way to hide this money multiplication magic from the everyday people than to introduce cashless policy EVEN TO THE LOCAL MARKET WOMEN.

why

BECAUSE the paper money in circulation is getting MORE THAN the computer money in form of Bank Credits

"and mark my words today, October 31st 2023, it'll be a matter of time before they make it compulsory for bus drivers to receive bus fares through phone transfer and not cash...YES...IN NIGERIA!

***all they'd have to do is tell you, the passengers, to purchase 'bus fare credits' through an app instead of paying cash (The app will have a fancy name to enable mass adoption) and the driver will scan your qr code or vice versa and receive his payment after you, the passenger, has selected the amount the driver states his fare would be.

OR BETTER STILL, each sit will have a unique qr code to match its sit number so a passenger can easily enter the bus, scan the qr code and pay his/ her bus fare without having to stress the driver and the driver can also know which sit havent paid based on the qr scan notification he receives. prolly on a large screen cus no driving and texting rii

now this same script will be applied to the abokis selling peppers and other basic stuffs.
the end game: to remove all physical cash from the system. WHY? to hide the scam of fractional reserve banking by calling it cashless economy" - The Secret Redpill

WHAT SHOULD NIGERIA DO NOW IN ITS CURRENT INFLATIONARY ECONOMY.

The opposite of Inflation is Deflation

1) INCREASE ITS FRACTIONAL RESERVE RATIO

Because a less reserve ratio = more money in circulation which isn't backed by any local production hence causing inflation as these excess money will only steal value from the old money already circulating hence causing inflation.

Inflation is not because the value of goods went up. It's all because the value of money went down, making the everyday person need more money to buy the same goods they previously bought. That's how their Purchasing Power gets reduced.

Nigeria Reserve Ratio should be increased for now to 50% + making less money in the economy. and when the economy picks up ie local production of goods is encouraged and farmers return to their Farms, then the Reserve Ratio should be reduced

That means, Nigeria should operate on a Floating Based Reserve Ratio based on the Economic Situation

CONCLUSION

1) All the paper Money in a country's economy operating under a fractional Reserve Banking is created out of debt. so much that even if we all were to pay all our debt back, there would still be debt in the economy in the form of interest on loans hence its called a DEBT-BASED ECONOMY.

2) Fractional Reserve Banking is needed for a debt based economy because the moment there is no debt, the economy stops working and this leads to a recession in the long term

That's why Banks dont encourage savings at home because there would be less customers deposits to multiply


What do you think

Please like and share so this piece can get to where it needs to for the necessary action to be taken


As you were

Op, what do you want me to do with this long epistle?

The most willing slave to the system

Maybe that's why you will keep working for money for the rest of your life instead of having money work for you

ForValour:
Op, what do you want me to do with this long epistle?

IAmHim1:
The most willing slave to the system

Maybe that's why you will keep working for money for the rest of your life instead of having money work for you

Are you not too predictable? A question and you are issuing insults. May all the evils you have ever wished others return to you.

Too long for breakfast 🥞

This is too long but very insightful. Kudos to the writer for such knowledgeable article and the time brought out for this.

Abeg summarize that OPAY part first....

Wow wow wow


Things like this are not allowed to be made public for our consumption. This is insightful, and I'm proud to say I read it till the end. Truly, economics is vast; and that is why you don't just bring a dunce to be a central bank governor cos....... what is [s]he going to do without the slightest idea of what economics is

Informative post.

wow wow wow!

what a BOMBSHELL..

This kinda information deserves to be hidden as much as made public..

9ise:
wow wow wow!

what a BOMBSHELL..

This kinda information deserves to be hidden as much as made public..

Hidden ke?
Whether you hide the information or not, nothing changes.

So what's the point?

Sounds like something from the book, the creature from Jekyll Island.

sanandreas:
Informative post.

Always wondered how okay makes its money, but opay ne de gree give us loan

So I finished 4 years of University economics without knowing this?
Sad

.

If this ideology is applied to production, infinity will be a starting point.

This is very insightful.
Couldn't believe I read it all.

Thank you op for the examples such that an average person can understand.

IAmHim1, I read your write up, especially because I love reading, and i wish to say that debt-based banking system is not unique to Nigeria. It is embedded in he banking structure worldwide. Infact, without such, how could great economies like that of the US, recover from the great depression?

Now, the computer age and its crypto realities have enforced the debt-based system of banking (alongside the occasional ponzi schemes) as the most substantial as it gets.

Quite insightful, can't believe I read it all, thanks Op.

Thanks!

OPICANTO2223:
This is too long but very insightful. Kudos to the writer for such knowledgeable article and the time brought out for this.

Wow that's crazy
Have been chasing the wrong thing the whole time

Hie. Thanks 💕

I do what I can.

If people perish for lack of knowledge, maybe...just maybe if they had knowledge, they won't perish

OPICANTO2223:
This is too long but very insightful. Kudos to the writer for such knowledgeable article and the time brought out for this.

It's a pyramid scheme. That's why Asake sang that It's lonely at the top.

At the top there are few people...those who were willing to unlearn and relearn while at the bottom, there are those who are stuck with a piece of information that doesn't guarantee their progress

If a piece of information doesn't guarantee your moving forward, WHY HOLD ON TO BACKWARDNESS

I'm sure the clothes most of us wore when we were 12 - 13 years old have prolly been discarded. Exactly! They don't fit no more so we throw them

Observe a pyramid: The bottom doesn't need the top but feel like they do(the presence of the top makes the bottom THE BOTTOM) WHILE the top NEEDS the bottom to BE THE TOP but make the bottom feel like they don't need them.

It's the mindset shift most never achieve

I'm glad you and those who gained value from this post read to the end

Umueme:
Wow wow wow


Things like this are not allowed to be made public for our consumption. This is insightful, and I'm proud to say I read it till the end. Truly, economics is vast; and that is why you don't just bring a dunce to be a central bank governor cos....... what is [s]he going to do without the slightest idea of what economics is

Hmmm. You noticed.

Thanks!

ComputerOperato:
This is very insightful.
Couldn't believe I read it all.

Thank you op for the examples such that an average person can understand.

Lolzzzz

Bold to think I'm Emefiele

I'm just an ordinary human like everyone else

Astra101:
Is Godwin emiefele on bail Someone should quote me cos this sound like emiefele trying to snitch!

IAmHim1:
The most willing slave to the system

Maybe that's why you will keep working for money for the rest of your life instead of having money work for you

You that is not a slave to the system why do you have a bank account even after knowing all this now? Why not close it down?

Everyone knows that banks make money from both loans and deposits and when you put your money in the bank, the bank uses it without your knowledge. The most important thing is that when you need to make use of your money it's available. Is that not the main thing?

So I dont understand why you wrote a whole long epistle to the ephisian church on what people already know.

I quite agree with your comment and I said so in No 2 of my conclusion

"Fractional Reserve Banking is needed for a debt based economy because the moment there is no debt, the economy stops working and this leads to a recession in the long term

That's why Banks dont encourage savings at home because there would be less customers deposits to multiply"

The Great Depression ties into the banks both on a central and commercial level and it's a topic that really seem too get my attention because it's from it recovery THAT THE WEALTH GAP WAS CREATED

and it's all from the understanding of how money is injected into the economy.

Whenever the Government borrows money from the central banks, it doesn't just go into its citizen account to start distributing the wealth.
NO

IT REDUCES THE INTEREST RATES TO ENCOURAGE BORROWING

and guess the class of people that can borrow

Exactly. THE CREDIT WORTHY PEOPLE or THOSE WITH COLLATERAL (in form of assets)

The poor don't have asset or the financial education to know what an asset is as I've seen some people in a 40k salary owning an iPhone

While the rich have assets which serve as collateral to obtain loans from the bank

So the rich GETS THE MONEY FIRST BECAUSE THEY HAVE COLLATERAL TO PRESENT TO THE BANKS

and when the rich gets this new money, they would have to spend and deposit and spend and deposit and spend and deposit REPEATEDLY for the money to get to the average people...the poor people

***If you can observe, whenever there is a drop in interest rates in the United States, the price of gold and crypto and US based stocks rises.

Because stocks( valued in dollar$) Bitcoin and Ethereum and a whole host of other cryptocurrency is tied to the United States dollar...even gold...and anytime the interest rate is lowered to encourage borrowing, credit worthy people with collateral gets the money and sometimes PUMP IT MASSIVELY and by the time the money gets to the poor people, and they try to buy back, THE RICH PULLS THEIR FUNDS!!

DOOH

Why do you think crypto and gold and US based stocks value rose during corona virus period when interest rates were the lowest
Bang!!

Moving on...

By the time this happens, the money would have seen vigorously multiplied, courtesy of Fractional Reserve Banking, making the money multiplied to whatever the reserve ratio calculations give

And by the time this happens, the price of goods would have gone up

And this would only happen if the goods on ground is LESS than the money in circulation

As I explained, the new money steals VALUE from the old money because the new money don't know where to put itself into
https://www.nairaland.com/8049624/wealth-series-pt-1-inflation


Hence the RICH GETS RICHER AND THE POOR GETS POORER because when even when the poor gets the money trickled to them after fractional reserve banking have reduced it's value, THEY DONT END UP BUYING ASSETS TO. MAKE THEMSELVES CREDIT WORTHY

you see them make bad financial decisions back to back and when someone tries to educate them, it feels like an insult to them

That's why some believe the rich should be taxed heavily

Why


Because the rich were/are smart enough to buy assets and the poor were/are not.

Sounds unfair right

Still typing...

And concerning BITCOIN, it's number is fixed already (21 million or so, if I can remember correctly) ie they can't create more of it but only create a unit to represent lesser ie

For example sake, they can say since if all the Bitcoin has already been created in the world at 22 million, let 1,000,000 Satoshi represent 1 Bitcoin and let 10,000 Nairaland coins represent 1 Satoshi

So you see. It has to be made like this because Bitcoin is limited hence giving it its value.
People can't create Bitcoin again cus all the Bitcoin has already been created! ( Imagine if someone can create Bitcoin and use it to purchase goods )

Just like we were back then during the gold standard:
Gold was hard to mine and not all countries have gold so that was why it was pegged to the United States dollar$.

It was the greediness of US Politicians to SPONSOR and finance wars that made them take the dollar off the gold standard because the quantity of the dollar in circulation IS MAJORLY dependent on the PHYSICAL gold that exists.

and remember, gold is hard to come by...if memory serve me correctly, it was 35 ounce of gold to 1 Dollar so if the United States wanted to spend 1 billion dollars to finance wars, it must have in its vaults 35 billion ounce of gold.

Lolzzzzzzzz. Where would they get such a massive amount of gold from huh

That's why the gold standard was scrapped



Goods and services are created daily and there have to be ready dollar to match these goods and services if not the dollar in circulation will be less than the available good AND SERVICES ...if continued over time, half
a dollar would be able to buy a house and IF CONTINUED OVER TIME, LEADS TO A RECESSION... and the United States is the center stage for production of local goods followed closely by china...so there has to be available money on ground to match.

Crypto can only do that if it's divided ON A MASSIVE SCALE until it reaches a point where 1 Bitcoin will be able to buy a country because, as I explained up there, if the Nairaland coin can buy a mansion, then its parent coin, Bitcoin, would be able to buy a country or two

Imagine how powerful those with 1 Bitcoin would be. Now imagine how powerful those with 19 Bitcoin would be like

The powerful families that have already built a name for themselves using dollar would not want to make that happen now would they

jamesversion:
IAmHim1, I read your write up, especially because I love reading, and i wish to say that debt-based banking system is not unique to Nigeria. It is embedded in he banking structure worldwide. Infact, without such, how could great economies like that of the US, recover from the great depression?

Now, the computer age and its crypto realities have enforced the debt-based system of banking (alongside the occasional ponzi schemes) as the most substantial as it gets.

IAmHim1:
Lolzzzz

Bold to think I'm Emefiele

I'm just an ordinary human like everyone else

Are you in same profession

After reading this, kindly prepare my BSc degree for me

No I'm not

Astra101:


Are you in same profession

InteliJ:
After reading this, kindly prepare my BSc degree for me