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Components of the Fiat Banking System (India-Centric)

Wed, 03 Jun 2026 00:00:00 +0000

The following table depicts the major components of the fiat financial system from the Indian point-of-view. For the most part, it is similar to the table for the US case. The key differences are noted at the bottom.

COMPONENTS OF THE INDIAN BANKING SYSTEM

ENTITIES	LIABILITIES	ASSETS	EXAMPLES
Individuals	Mortgages, Loans, Taxes	Deposits, Banknotes, Government Securities (G-Secs), Stocks, Bonds, Fund Units, SDLs, Benefit Payments	High Net-Worth Individuals, Retail Investors, Family Offices, Other Individuals
Businesses and Non-Profits	Loans, Bonds, Equity, Commercial Paper, Taxes	Deposits, Banknotes, Subsidies	Tata Group, Reliance Industries, Infosys, Indian Red Cross Society, Small and Medium Enterprises
Financial Institutions	Deposits, Fund Units, Securities Issued, Taxes	Loans, Mortgages, G-Secs, SDLs, Stocks, Bonds, Commercial Paper, Bank Reserves, Deposits, Banknotes, Bailouts	State Bank of India, HDFC Bank, ICICI Bank, SBI Mutual Fund, Life Insurance Corporation of India
Foreign Sector	Deposits, Stocks, Bonds, Loans, Taxes	G-Secs, Stocks, Bonds, Loans, Fund Units, Deposits, Banknotes	Reserve Bank of Japan, Norges Bank Investment Management, Foreign Portfolio Investors (FPIs), Global Corporations
Public Authorities, Government Trust Funds, State Governments	Bonds, SDLs, Benefit Payments	Government Securities, (State) Taxes	Employees’ Provident Fund Organisation (EPFO), National Pension System (NPS Trust), State PSUs like NTPC, Indian Railways, Government of Maharashtra
Reserve Bank of India (RBI)	Banknotes, Bank Reserves	Government Securities, Foreign Exchange Reserves, SDLs	Reserve Bank of India (Mumbai, Regional Offices)
Government of India	Government Securities, Subsidies, Bailouts	Taxes	—

NOTES

Components of the Fiat Banking System (US-Centric)

Wed, 03 Jun 2026 00:00:00 +0000

This is a simplified depiction of the fiat banking system. Here, we will focus on the US system. Note how each liability of an entity corresponds to an asset of another entity and vice versa.

COMPONENTS OF THE US BANKING SYSTEM

ENTITIES	LIABILITIES	ASSETS	EXAMPLES
Individuals	Mortgages, Loans, Taxes	Deposits, Banknotes, Treasuries, Stocks, Bonds, MBS, Fund Shares, Benefit Payments	High Net-Worth Individuals, Retail Investors, Family Offices, Other Individuals
Businesses and Non-Profits	Loans, Bonds, Stocks, Commercial Paper, Taxes	Deposits, Banknotes, Subsidies	Walmart, Caterpillar, American Red Cross, Powell’s Sweet Shoppe
Financial Institutions	Deposits, Fund Shares, MBS, Taxes	Mortgages, Loans, Treasuries, Stocks, Bonds, MBS, Commercial Paper, Reserves, Deposits, Banknotes, Bailouts	Bank of America, Vanguard, Fidelity Investments, Fannie Mae MBS Trusts, CalPERS
Foreign Sector	Deposits, Stocks, Bonds, Loans, Taxes	Treasuries, Stocks, Bonds, Loans, MBS, Fund Shares, Deposits, Banknotes	Bank of Japan, Norway Government Pension Fund Global, Foreign Corporations and Individuals
Public Authorities and Government Trust Funds	Bonds, Benefit Payments	Treasuries	Social Security Trust Fund, Medicare Hospital Insurance Trust Fund, Tennessee Valley Authority, Port Authority of New York and New Jersey
Federal Reserve	Banknotes, Reserves	Treasuries, MBS	Federal Reserve Bank of New York, Federal Reserve Bank of Chicago, Federal Reserve Bank of San Francisco
US Federal Government	Treasuries, Subsidies, Bailouts	Taxes	—

NOTES

How Governments Generate Revenue

Sun, 24 May 2026 00:00:00 +0000

Private individuals and businesses must either sell something of value to acquire money or expend time and resources to mine it directly (think of gold mining in the case of a gold standard). Governments, in contrast, do not obtain payment for goods or services they produce; they generate revenues through the seizure of assets. In the past, they might have sent their agents to seize grains, cattle, coins, etc. from people. But in a monetary economy, they simply seize monetary assets, which is a lot easier to do.