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Courtesy of ZeroHedge View original post here.
Authored by Tuomas Malinen via GnSEconomics.com,
Banking is at the heart of modern economic systems. The history of banking is also very long. The first banks appeared around 2,500 years ago, according to the latest historical research.
As we have explained previously, banks generate most of the new money in circulation. They have also enabled major economic and societal upheavals, including the Industrial Revolution. Now, banks are central to the approaching change, or ‘battle’, within our economic systems.
In this second blog of our financial history series, we go through the development of banking from that of early money exchangers to the rise of the ‘shadow banking’ sector, and we explain how the modern banking system operates.
The origins
As we explained in the previous blog, banking practices developed in Ancient Greece, more precisely in the harbor city of Piraeus, where the local bankers, or trapezitai, took deposits and provided loans at the end of the fifth century BCE.
Still, the first known banks that truly resembled modern banks operated in Imperial Rome. The argentarii, who appear in the Roman history in mid-fourth century BCE, took deposits, advanced money to clients, lent to bidders at auction and transferred money via bills of exchange. Due to the sophistication of this banking system, it is no surprise that Rome also experienced the first banking crises. More on this later.
Simple merchant banks, usually in the service of the rulers, appeared to Europe in the 14th century. They were concentrated in financing the production of and trade in commodities. While the Chinese had invented bookkeeping, it only appeared at the center of western development and civilization through Italian banks and the scholastic work of Lucca Pacioli in 1494. The first modern banks and payment systems arose from merchant fairs where commodity trades were settled.
At the merchant fairs of Lyons, in the mid-1500s, merchants realized that the trustworthiness of well-known international merchants made it possible to pass their promissory notes (a promise to reimburse at a later date) to lesser-known local merchants to create a credit system, where bilateral promises between local and international merchants were paid out as liquid liabilities. These could then easily be assigned from creditor...