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 gyro 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. Greek bankers developed 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 3^th century, Italy rose as a leader in commerce and industry. The Italian merchants helped revive commercial (merchant) banking. During the 14^th 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 15^th 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. But it was the London goldsmiths who laid the foundations for British banking. By the 17^th century, goldsmiths were issuing additional receipts against the gold to borrowers.

The 1882 Bills of Exchange Act defined banking as trading in money by investing, lending or exchanging it. This Act defined a bill of exchange as a note drawn on a banker and payable on demand. These demand notes are the precursors of the cheques we use today.

Oxford University Press, 2010

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