In your bank account, you might see a balance of 1000 rupees at today’s rate, but what if I told you that this 1000 rupees can turn into 1900 rupees, 2500 rupees, or even 5000 rupees without you realizing it? This is where the hidden game of money begins, and most people are unaware of what’s truly happening.

When you deposit money in a bank, you might believe that you’ve entrusted 1000 rupees to them. However, the reality is quite different. The bank only holds 10% of that amount in reserve, also known as vault money. The remaining 90% can be legally invested in the stock market, lent to others, or used for various financial activities.

Now, let’s delve into the actual process at play and understand the implications. The crucial point here is that the currency in your pocket today, the money you call rupees, is not genuine money; it’s merely currency. There’s a significant distinction between the two. To illustrate this, think back to the demonetization of 500- and 1000-rupee notes. If you still have one of those notes lying around somewhere in your house, you can’t deposit it in a bank because it’s no longer valid. Its value is essentially zero.

In contrast, if you had used that 1000 rupees to buy gold, its value would have remained intact, or perhaps even increased over time. The takeaway here is that real money isn’t in the form of currency; it’s in assets like gold, real estate, or investments.

The currency you hold in your wallet can lose its value at any time. Governments have the power to demonetize or change the value of notes, and there’s very little you can do about it. The key is to understand that trusting currency is a risky game while understanding the concept of real money can lead to financial security and wealth.

When it comes to our bank accounts, many of us believe in the dual allure of safety and interest. You deposit your hard-earned money, whether it’s a modest 1000 rupees or a substantial sum of 1 crore, with the expectation that it’s secure and that you’ll earn some interest. However, it’s time to unveil the hidden game of money that’s been unfolding in the background.

First, let’s tackle the notion of safety. The recent episode of the Punjab and Maharashtra Co-operative (PMC) bank serves as a stark reminder. Thousands of depositors found themselves in a nightmarish scenario, unable to access their funds. A withdrawal limit of a mere 25,000 rupees over six months was imposed, leaving many unable to access their own money. The uncomfortable truth is that your money in the bank is not as secure as you might believe.

Moving on to the promise of interest, yes, banks do offer interest on the money you park with them. It may be 2.5%, 3%, 5%, or even 6%, depending on the type of account. However, the catch is that banks use your deposited funds to generate more money for themselves. They invest in the stock market, grant loans to others, and partake in various financial activities. In essence, they make your money work for them.

The problem arises when you compare the interest earned with the ever-persistent specter of inflation. In most cases, the interest rate offered by banks lags behind the inflation rate. So, while you might earn, say, 6% interest on your 1000 rupees, if inflation is running at 8%, your money’s real value is diminishing. Your 1060 rupees are worth less in terms of what they can buy due to the erosion caused by inflation.

What’s more intriguing is the fractional reserve system used by banks. When you deposit 1000 rupees, the bank is legally allowed to lend out a substantial chunk of that money to borrowers. For example, if you deposit 1000 rupees and the bank lends 900 rupees to borrower A, you might think your account still shows 1000 rupees. But the reality is that 90% of your money is in use elsewhere.

The issue arises when everyone decides to withdraw their money simultaneously. If a bank has a large customer base, and they all demand their funds, the bank won’t be able to provide it all because they keep only a fraction in reserve. It’s a precarious situation.

The banking system is a complex web of transactions and lending, and what you might think of as your money isn’t exactly what it seems. As we’ve discussed earlier, banks operate on a fractional reserve system, where they are legally allowed to lend out a significant portion of the money you deposit. This is the heart of the hidden game of money, and it’s time to delve deeper into how this process affects the value of currency.

Imagine you’ve deposited a sum, say 1000 rupees, into your savings account. While you see that 1000 rupees in your account, the reality is that the bank has taken a large portion of it to lend to others. They might lend out 90% of that amount to another customer who needs a loan. But you still see the full 1000 rupees in your account statement.

The complexity deepens when this borrowed money is used by the borrower. For instance, let’s say this individual borrowed 90,000 rupees to buy a bike. The bike seller receives the 90,000 rupees in their account, and they, too, might deposit it in a bank. What happens then? The bank, following the fractional reserve system, can now lend out 90% of this newly deposited money to someone else.

This process doesn’t stop. The cycle continues, and as money moves through various accounts and loans, the currency effectively multiplies digitally. Banks keep using these digital numbers to create more loans, give salaries, and engage in their operations. As a result, the amount of currency in circulation increases significantly.

This phenomenon is one of the reasons why the value of currency tends to erode over time. While new currency is legally printed by the Reserve Bank of India (RBI), the value of existing currency diminishes. This is in contrast to assets like gold, which have limited supply and can’t be printed at will.

To comprehend the ongoing devaluation of currency, you need not look further than the price of everyday goods and services. Ask your parents about the purchasing power of 1000 rupees when they were young. They would tell you that it could buy much more than it can today. The inflationary effect on currency becomes evident when you realize that 1000 rupees from a couple of decades ago could buy you more samosas, jalebi, or a greater quantity of milk than it can today.

This is why the value of gold, a tangible asset, continues to rise over time. Gold’s limited supply and intrinsic value make it a sound investment. Meanwhile, currency, which can be endlessly created and circulated by banks, loses value over time.

A striking example of this concept is often found in family homes. Many Indian households stash away cash, often passed down through generations, in the belief that it’s a safeguard for emergencies. However, they might not realize that over the years, the value of that cash gradually diminishes. It’s a silent erosion that can significantly impact one’s financial future.

When it comes to safeguarding your wealth, the age-old adage “Cash is king” may not hold as much weight as it once did. The story of your grandfather keeping cash safely, only to see its value erode over time, is a stark reminder of the hidden devaluation of currency. What’s even more telling is how the rate of gold increased, while the value of that cash dwindled. This is a testament to the enduring strength of commodities, especially gold and silver.

Unlike cash, the value of gold and silver rarely depreciates. These precious metals, often considered safe-haven assets, have the unique ability to hold their value over the years. In fact, they tend to appreciate, especially during times of economic turmoil or uncertainty. Whether it’s a global pandemic or geopolitical tensions, people instinctively turn to the stability of gold.

This inherent value retention makes commodities like gold and silver an attractive choice for investors looking to preserve their wealth. The beauty of these investments lies in their stability. They act as a financial cushion against the vagaries of inflation, ensuring that your money retains its purchasing power.

But the practicality of physically owning gold or silver may not appeal to everyone. Managing and safeguarding these tangible assets can be a challenge. This is where the concept of digital gold comes into play.

Investing in digital gold is a convenient and secure way to participate in the appreciation of these precious metals. You can buy digital gold through various platforms and benefit from the flexibility it offers. The biggest advantage is that you can convert your digital gold into cash at your convenience. This means you have the ability to capitalize on the rising value of gold without the hassle of storing or transporting physical gold.

Moreover, if you’re keen on diversifying your investment portfolio beyond precious metals, having a Demat account is a wise move. A Demat account, like the one offered by Upstox, empowers you to invest in stocks, mutual funds, and other financial instruments. It’s a vital tool for anyone interested in the world of investments.

During periods of market volatility, a Demat account can be your gateway to seizing opportunities. When stock prices plummet, it’s often the ideal time to buy, and with a Demat account, you can quickly and conveniently make informed investment decisions.

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