Money is any item or verifiable record that is generally accepted as payment of goods and services and repayment of debt such as taxes, in a particular country Banking in the other hand is an industry that handles cash, credit and other financial transactions as it is defined in Wikipedia.
This essay will help us understand the history of money and banking. Money has close relationship with banking because money is the basis of banking. All banks do operate on money; they may be loaning out or accepting deposit of money.
Money came into existence about 3000 years ago and started as a result of trading activities around the world whereas banking was started with the need of satisfying the market by providing loans. Money can be in form of shells, metal coins or a piece of paper with an historical image. Before money had started to be used, people used to trade in exchanging of goods and services for other goods or service and this was called barter trade. The barter trade was hard to carry out at all times because not all the people could agree at a certain quantity of a commodity to be exchanged with the other and this necessitated the other means of exchange. As a result of such disagreement, commodity money was used. The goods which were commonly used as a means of exchange were salt, cattle, cowrie shells and also animal skins. Cowrie shells were among the items which were used as money for a long time because it was stainless and milk-white. However, those goods were still inconvenient because they were not easy to transport and others were also perishable and could be a disadvantage to traders. Such inconveniences further led some people decided to shape the material into coins because it was not easy for one to carry the items in his/her pocket. Lydia (now western Turkey) became the first region to accept minted coins as currency. The coins were made from the mixture of gold and silver. These currency was very important because it made trading activity more efficient. The values of the coins depended on the materials which were used to make them. Gold coins were most expensive followed by silver. However, the use of coins in Lydia brought competition from China where they advanced and used paper money in 700 B.C and that served as the first paper money to be used in the world. Later in the 16th century, the Europeans adopted the paper currency which was signed by the Governor; it was first used in Canada. It was called as I Owe You (IOUs). It further spread to America in 1862.Thereafter money use spread to the rest of the world and this increased the international trade among different continents. The Europeans spread the use of paper money to their colonies.
Banking on the other hand started a long time ago in Babylon at around 1,800 BC. It started whereby the moneylenders not only accepted deposits and also gave loans to people in the ancient Greece and Rome but also changed money. Banking had become famous in Rome and Greece because they were the monopolies and the owners of the bank immersed a lot of wealth as a result. The famous family of Fugger’s became very famous in Augsburg because they were the thriving bankers from Germany in the 16th century.
Banking industry continued to thrive into England more even as the goldsmiths were being looked upon by people for safety of their wealth. The goldsmiths used to issue written papers indicating the date they would pay the beholder which was convenient to carry around. In 1694, the Bank of England was formed to loan out the money to the government in case they needed especially during the times of wars. The government could sometimes borrow from wealthy individuals in the country. The formation of bank of England opened way for other smaller banks to be formed although they were not allowed to issue their own notes unlike the bank of England. The small banks were formed in different regions in England and which facilitated the issuance first travelers’ cheque.
However, there was bank crisis in 1793, 1814- 1816 and in 1825 which was because people lost their trust in their banking industries and had to withdraw their money from their bank accounts. As time went by, a lot of laws governing banks in England were formulated and some resulted in very many banks with many shareholders to form outside London. Many other small banks moreover merged with the large banks.
Several banks were later formed as a result of increased trade because the money and banking had become efficient to several traders. Some of the family banking-merchants which were formed as a result of favorable conditions and dominance of England sea shipping are Rothschild and Baring families. They emerged in the 18th century.
International banks started ends forth to be formed after the family merchants’ banks in England and there it shifted to China where a draft bank called Rishenchang was formed in 1823. This draft bank got favorable conditions from the Qing dynasty in China which was a nationwide financial system. These draft banks were situated in Russia, Mongolia and Japan to coordinate international trade effectively.
In the 19th century, several governments started to form central banks which could regulate several banking activities.US Federal Reserve was formed in 1913 which was reinstated by the US Congress by passing the Federal Reserve Act in 1913. Some other countries thereafter followed USA are Australia (1920), Colombia (1923), Mexico and Chile (1925), Canada and New Zealand in 1934. Brazil became the last country to form a central bank among the independent nations. African countries later followed the European countries in forming central banks. Central banks have been helping in formulating several securities and laws that help in banking system. All of the commercial banks do work under the rules and regulations put by the central banks. Moreover international banks such as International Monetary Funds and World Bank were formed by international organizations to help by lending the money to member countries and also funding several important projects. Several banking institutions has also adopted mobile banking which is up-to-date application in banking.