At one point, gold was used as the medium of exchange much like dollars are today. Like dollars, people wanted a safe place to store their gold - thus the bank. Rather than having to physically carry around their gold (or their dollars), banks allowed people to write a check - an instruction to the bank to transfer their gold (or dollars) from their account to someone else's.

This kind of check writing became so common, that people began to trust the bank's account records, rather than bothering to physically move the transfered gold (or dollars) from the old safety deposit box to their own.

Since gold (and dollars) no longer had to be physically moved, banks realized they could now fudge their records - increase a person's account balance without actually having the gold (or dollars) to put in it. Thus the loan was invented. As long as everyone didn't withdraw their gold (or dollars) at the same time, the bank could simply use other people's gold (or dollars) to cover individual withdrawals.

Loans were such a profitable side-business that they soon became the primary business of banks. Thus we have modern banking, the creation of credit money out of nothing, and the ever present threat of runs on banks.

An Advance in Sid Meier's Civilization.
Modern banking arose during the Renaissance among the merchant families of the Italian city-states. These families benefited from the increase in trade, both with the Middle East and within Europe. Wealthy merchants pooled their surplus money into a bank, then loaned cash (with interest) to other commercial enterprises. The availability of this capital for investment made many new businesses possible, accelerating economic growth.
Prerequisites: Trade and The Republic.
Allows for: Industrialization.

Bank"ing, n.

The business of a bank or of a banker.

Banking house, an establishment or office in which, or a firm by whom, banking is done.

 

© Webster 1913.

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