BANKING from the Egyptians to the Victorians
The first safe-deposit vaults were operated in ancient Egypt by royal palaces and temples. Receipts were issued to those who deposited their goods in these vaults and written orders were required for withdrawals from them. The common form of money at that time was precious metals in weighed quantities. However, the written withdrawal orders became a more convenient method of payment.
In Alexandria, in the Ptolemaic period (305-30 BCE), granaries were organized into a network of state grain banks. Their main accounts were recorded in a central bank. This bank network operated as a giro system. Payments were transferred from one account to another without the physical exchange of money.
The ancient Greeks developed money in the form of silver and bronze coins around 600 BCE. Counting coins was much quicker and more convenient than weighing them, so the use of coins for everyday transactions spread rapidly. Greek bankers
developed other services, including money – changing services, because of the variety of coins used. They developed a credit system which provided merchants with finance to pay for the shipping of their goods.
During the Middle Ages, European monarchs controlled the production, or minting, of coins.
The value of the royal coins often exceeded their metallic value and minting costs. The English monarchs recalled all the coins and issued new ones every few years. This enabled them to reduce the circulation of counterfeit coins and make a profit from the metals used.
In the 13 th century, Italy rose as a leader in commerce and industry. The Italian merchants helped revive commercial (merchant) banking. During the 14th century, the Bardi and Peruzzi families ran the major banking houses. Their banks collapsed, however, due to large and imprudent loans to the kings of England and Naples. The result was a financial panic, which had a serious effect on the economy. The Medici family established their own banks in the 15th century. These banks had connections to Germany as well as to financial centres in northern Europe. Banking in continental Europe was controlled by wealthy private bankers and powerful statesmen for more than 300 years.
In England in 1571, Sir Thomas Gresham built the first Royal Exchange. He obtained large loans from financiers in Antwerp. He was also banker to a series of monarchs from Henry VIII to Elizabeth I. But it was the London goldsmiths who laid the foundations for British banking. They issued deposit receipts, verifying ownership, to customers who deposited gold and silver with them. At first, the receipts simply proved that a certain amount of silver or gold had been deposited, but later the use of the receipts extended beyond that of reclaiming deposits. They became a form of exchange between traders in settling transactions. They were a convenient alternative to handling coins or precious metals, and so operated as paper money. This practice eventually led to the use of banknotes in England.
By the 17th century, goldsmiths were issuing additional receipts against the gold to borrowers.
This meant the receipts on the gold exceeded the value of the gold reserves held. The result was an increase in the money supply. This system only worked so long as the original depositors did not withdraw all their deposits at the same time. There are other goldsmith banking functions that are relevant today. They include the development of demand and time deposits, balance sheets and promissory notes.