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The history of conventional banks date back to as early as the eleventh century in the nation of

England, though the primitive form of banks had existed back in 2000 B.C. The earliest forms of
financial transactions had depended upon the Jews who were responsible for accepting deposits
of money from the richer strata of the society and lending them to the warriors during crusades.
They earned hefty profits out of these loan advances through charging high rates of interest.
However, the Jews were extradited from the society due to the unjustified ways they
implemented for generating profits, back in the year 1290. They were succeeded by Italian
migrants from USA who initially were traders but settled down as bankers in UK during the
sixteenth century. These new bankers were responsible for looking after the accumulated gold of
rich people and forwarded receipts to the depositors against those deposits. Receipts were
actually, far better and easier mode of carrying around sums of money due to the heavy weight of
the gold coins. These receipts later were popularised as bank notes and were eventually being
used as instruments for making transactions in the market (Pond, 2007, p. 32). This was how
paper money came into existence in the English society.
But the invention of paper money was also associated with serious drawbacks like the scope that
they provided to the unfair moneylenders, who soon discovered the immoral benefits they could
enjoy out of the scheme. The money lenders started issuing notes bearing the denomination of
sums advanced as credits, even though they were not backed by gold. Hence, the economic
situation of the nation was at the mercy of the moneylenders who actually created money out of
nowhere and triggered inflation at the same time. Hence, the modern method of creating money
out of seigniorage was established that established the people with the highest sums of bank
notes, as the wealthiest people in the nation. This system was approved as the mode of financial
transaction in the year 1694 in England. The Bank of England was established in the latter parts
of eighteenth century as the public exchequer. Its role was modified during the nineteenth
century when the Bank undertook the role of lender of last resort to the economy so as to prop it
up at times of financial instability. In USA too, a transformation originated during the same
phase when silver money was replaced by pennies made out of cheaper materials. USA used to
import bullions of silver from England and India while exporting gold to them in exchange.
There was an arbitrage profit involved in such transactions due to the difference in the values of
those metals among the nations (Ashton, 2006). The First World War saw the world in the midst
of a huge financial crisis owing to the use of gold standard. Hence, the standard was abolished
and the national treasuries took charge of the circulation of money in their respective nations.
This was when the initiation of the new form of banking structure took place in the world (Bank
of England, n.d.).

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