Money and Banking

The arguement whether banking originated from China or from England is not of much significance. The important thing is that commercial banking arose from the activities of goldsmiths who had facilties such as sfes for the safe-keeping of valuables. Merchants and other people who had valuables(especially precious metals such as gold and silver which were used as money) deposited them with goldsmiths.They, therefore, performed an important function of commercial banks--the acceptance of deposits. At first they charged the merchants and other depositors some fees for performing these functions for them.

In exchange for valuables deposited, the goldsmith issued receipts for various weights of valuables deposited. The valuables deposited were to be repaid on the presentation of the receipts. Thew person or merchant who deposited the valuables found out tht he could use the receipts issued to him by the goldsmith to make purchase. The receipts therefore later became means of payments. The merchant who now receives the receipts from the depositor could present the receipts to the gold smith to claim the valuables. On the other hand he could use the receipts to make other purchases. Whoever presents the receipts to the goldsmith is given the valuables worth the amount on the receipts. Since the receipts issued by the goldsmiths were used as money, they became the first issuers of bank notes, a function which was originally performed by commercial banks.From the foregoing we can see immediately the origin of commercial banks.