How Did Banks Develope From Goldsmith Establishments?


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Tariq Habib Profile
Tariq Habib answered
Commercial banking began in England with the goldsmiths, who developed the practice of storing people's gold and valuables for safekeeping. At first, such establishments were simply like baggage checkrooms or warehouses. Depositors left gold for safekeeping and were given a receipt. Later they presented their receipt, paid a small fee for the safekeeping and got back their gold.

The goldsmith soon found it more convenient not to worry about returning exactly the same piece of gold that each customer had left. Customers were quite willing to accept any gold as long as it was equivalent in value to what they had deposited. This anonymity was important for it freed goldsmiths to relent the gold.

If the Gold smith Bank were here today, its demand deposits would be part of the money supply, they would be bank money. However, the bank money just offsets the amount of ordinary money placed in the banks safe and withdrawn from active circulation. The process would be of no more interest than if the public decided to convert nickels into dimes.
thanked the writer.
Anonymous commented
A major variance from this is the partial reserve system: The amount of money that the bank has in its safe in total is far less than the total deposited, as (it is assumed) there would never a be a need to return all of the capital at once.
This allows banks to lend money and gamble on the stock markets.

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