Monday, August 20, 2007

Demand Deposit (3) - Gold Coins

When I put my salary in the bank, I am really just putting it in a warehouse for safekeeping. This was obvious in the days when gold coins circulated. Keeping the coins at home would be too risky, if I could not afford a safe. I would be very vulnerable to being robbed. Putting my gold coins in a bank for safe keeping would make good sense. The bank service would be even better, if the bank would act on my instructions to make payment to other people on my behalf when required. They would simply transfer the ownership of the right number of coins to the person to whom I chose to make payment.

The bank is just providing a warehouse service for the gold coins. The ownership of the coins does not shift to the bank, when I deposit them. The coins are still mine. They only change ownership, when I instruct the bank to make a payment to someone. At that point the ownership of some of the coins transfers to the person paid. The bank never owns the coins. Therefore the gold coins should never be recorded as an asset on the banks balance sheet. All that should appear on the banks balance sheet is any contingent liability for coins that are lost or stolen.

1 comment:

Gold Coins said...

Every one want to save there wealth physically gold bullion is good choice.Thanks for the great reading, we buy gold coins in a recession. I will pass this on to our Ira clients to read.

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