Our financial system is very complicated and many people just don't understand how it operates. Thus let's use a simple example to explain it.

Let's say that person 1 have excess of wheat and person 2 needs urgently to borrow 1 bag of wheat from you and offers you as a reward a little bit extra on return - for example 5% more. All of the people from the town know that person 1 has excess of wheat and whenever somebody needs to borrow some of it then they come to person 1 and give him extra 5% on return. One day person 2 does some physical work for person 3 and instead of taking the direct pay from person 3 he says that this person 3 gives 1 bag of wheat plus 5 % to person 1. Or one day person 2 knows that person 3 needs very urgently 1 bag of wheat and offers him that bag but under condition that person 3 returns him 7% more. Person 2 goes to person 1 and borrows 1 bag of wheat with the condition of 5%, later he gives it to person 3 with the condition of 7% and he makes extra profit of 2% for himself.

Or one day person 2 doesn't have enough of wheat and agrees with person 1 that he will return only half of the bag of wheat and for the rest of his debt he will do some physical work or give 1 bag of apples which he has in excess for his needs.

There are few other variations of how the bag of wheat circulates, how is being used, exchanged and returned within the small society of the town but most of the time people borrow the bag of wheat when they are not able to grow it themselves and they must feed their family. Only on few occasions some people make extra profit by some speculations. People exchange only physical substance ( which on some occasions can be exchanged for physical work or other favors ) and it is easy to track everything - the person 1 cannot lend 1 bag of wheat to multiple persons at the same time.

To be continued...