In the Deccan Plateau of India, two small villages were situated called by names Ramapur and Krishnapur. The two villages having abundant natural resources like fertile land and water resources for agriculture production. Due to different land fertility reasons Ramapur cultivated high quality Paddy (Rice) and Krishnapur wheat.
Trading on interests
The people interests in each village was different and mutual between the villages. So, this lead to the beginning of trade in between these two villages.
Terrible drought conditions
Both the villages are healthy and sufficient in food and their interests until Ramapur was stuck by terrible drought . The production or the cultivation was completely dropped due to scarcity of water in the village. In order to meet their needs they depended on imported Wheat from Krishnapur in exchange of Rice which is stocked in their Godowns for future use.
As time passed their stocks are getting low day by day. They decided to start cultivation again. So they made a deal with Krishnapur, for water in return for more Rice bags in coming year and the deal was successful. As the days passed the field was not good due to environment problems. The Ramapur people unable to meet the promise of the deal they made with Krishnapur . As they want to try again for better the productions, they asked for more water to Krishnapur Village
As they cannot broke the promise again and again. The two village Heads (Sarpanchs) documented the deal on the bond paper legally. The copy of this primary bond paper issued to Krishnapur village Sarpanch and got the water in return for this term.
Raj Kiran a young farmer in the village needed more water share for cultivation to produce much paddy to meet the primary bond water deal. So, He asked for water share from other villagers. No other person in the village wanted to give their water share. As he also doesn’t have Rice stock reserves to exchange, He approached Sarpanch on this problem. The Sarpanch cannot ask for more water with primary bond. So he came up with an idea and issued another bond paper (Bond with a deal in return for more Rice exchange from reserves for water) in personal request to Krishnapur Sarpanch. Raj took this bond paper to Krishnapur village Sarpanch and received water to his field.
This idea went viral in village and landlords with more water requirement received water with personal bond papers issued by Grama Sarpanch. To simplify this bond papers issue, the Sarpanch started printing his bond papers with own symbol of the village. This time paddy yield was good according to their requirements. Other connected villages also adopted this idea in times of bad conditions. when they have less reserves in exchange.
In the above story, The personal bond papers are nothing but currency. It is a promise or value for which we get a commodity in return. Similarly a country generally use Gold as reserves in exchange with other countries for Goods and Service exchange. It prints currency if its reserves are less than requirements. From next time if you are giving currency in exchange of any good, it is both promise and value.