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How did banking originate? What activity resulted in banking as we know it today? To answer these questions it is necessary to step back into history to several thousands of years and study its origins. Barter Man was, in the dawn of history, simple and self-sufficient. He lived in caves, killed animals when hungry and he had no other wants. As time passed, men began living in villages and started to till the ground. Often the produce of a farmers fields was more that he required. Similarly, a fisherman often caught more than his family required. In the ideal situation, the farmer would exchange his produce for fish with the fisherman. This exchange is known as barter. And in the ideal world they would both be content. However, a complication could and would arise if the farmer did not require or want fish. If the farmer required a plough and the smith requires steel there would be tremendous and horrendous difficulty in matching those that individuals had with that which they needed. And it was on account of this difficulty of meeting needs that the barter system surrendered to money. Money Money was created or rather born to reduce the value of the items people had to a common denominator to facilitate exchange of products to satisfy needs. The fisherman would sell his fish as would the farmer for money. The farmer would then, armed with the money he has in hand purchase a plough. The fisherman with the money he has received, would buy the food he needs for his family. The earliest form of money was bones on which marks were made to distinguish between values. Metals then began to be used the most popular being gold, silver and bronze. Symbols, sizes and signs on these differed from time to time and from country to country. As men began to travel from country to country to exchange goods and to trade, banking was born. The term money is derived from the temple of Juno Moneta which was used by the Romans as a mint for their coins. Banking Banks were born to facilitate trade to lend monies to purchase goods, to store monies and to change currencies. Banking began thousands of years ago. The Assyrians, Babylonians and Ancient Greeks practiced simple forms of banking safekeeping, exchanging foreign coins and making loans mainly in connection with trade. Temples such as those of Ephesus and Delphi were Greek banking institutions. The Romans did not have State Banks but had minute regulations regarding private banks. These were calculated to create utmost confidence in the system. Ancient Rome had two types of bankers those who made loans and those who exchanged foreign monies. Banking grew rapidly in the Middle Ages in Europe when trade began to flourish. Italy has a very old banking system. Banks were established in Venice in 1171 and in Genoa in 1320. The term bank is derived from the Italian word banco which means bench. The early bankers, the Jews of Lombard, transacted their business at

benches in the market place and later in inns and taverns. In those days if a banker failed, his banco or bench was broken, hence the term bankrupt. Another opinion is that the term bank evolved from the German word back meaning a joint stock fund which was Italianised into banco. As many of these inns/taverns were known by the signs they had such as eagle, crossed swords etc. the banks that emerged had the same signs to signify their origin (Barclays bank has as its sign a black eagle. Presumably it began its business at a inn called the Black Eagle). In England, although there were money changers during the reign of Edward III, banking as we know it now, began in the 1600s. In 1640, Charles II borrowed (seized) 130,000 pounds of gold placed by merchants in the Tower of London for safekeeping. He recompensed them by paying them a percentage of the amount that he had borrowed. This was the interest on the loan. As this was profitable for merchants, especially at times when they had monies in hand which they did not need at that time for goods, they began to lend for interest the interest being determined on the need for the money and the period it was kept. Others, especially goldsmiths began to borrow monies to lend. They solicited monies from the public promising safety and interest. They (goldsmiths) gave depositors receipts for their funds. These receipts could be used as money and used to purchase goods as they bore the promise of the initial borrower the goldsmith to pay principal and interest on the submission of the receipts. The implicit understanding was that the repayment would be in gold. This is how money was linked to gold initially. The receipts given by the goldsmiths were the beginning of modern day cheques. As the receipts were accepted as money, goldsmiths began to make loans with receipts instead of gold. They thus created money a job which made them bankers rather than goldsmiths. Gradually bankers those who accepted monies from depositors and then lent them out to traders grew. They took over from the goldsmiths. In the eighteenth and nineteenth centuries they flourished as Europes colonies in Asia, Africa, Australia and the Americas grew.