Monday, March 5, 2007

Inflation: Are Banks Responsible?

“That we are overdone with banking institutions which have banished the precious metals and substituted a more fluctuating and unsafe medium [paper, and now not even paper]…that the wars of the world have swollen our commerce beyond the wholesome limits of exchanging our own productions for our own wants, and that, for the emolument of a small proportion of our society who prefer these demoralizing pursuits to labors useful to the whole, the peace of the whole is endangered and all our present difficulties produced, are evils more easily to be deplored than remedied.”

—Thomas Jefferson to Abbe Salimankis, 1810

Now this statement seems to be absolutely absurd!! After all who can dare question a bank's role in the development of any economy? I, for one, am a banking enthusiast but sometimes I ponder whether banks could be held responsible for inflation.

Over 95% of the world's population does not understand the meaning of “dividend” , “mutual fund sales” and “investment-banking fees” but thanks to these three things, the Royal Bank of Canada made record profits of 1.49 billion dollars in the first quarter—which, from a purely instinctive point-of-view, seems STUNNINGLY OUTRAGEUOS to me!

By doing nothing-productively-tangible for the world—in fact by simply creating money—are banks nothing more than an aspect of that part of the machine that endlessly drives up inflation by devaluing currency?


aman said...

essential they are nevertheless. if they drive inflation , they drive progress of the economy as well, don't they?

Ashish said...

yes aman, they do. as i said no one can question the role of banks in the development of any economy. i firlmy believe that banks are satisfactorily fulfilling their moral obligation to the communities they serve. but recently, the whole of india seemed to be discussing the causes of inflation. and i wonder if banks can be held responsible for inflation....