Banking history

History of Banking

Basics of Banking and InsuranceBC5B09, Hours 3, Credits 2

Santhosh [email protected]

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Human Evolution and Civilization

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• Agriculture – Seed deposit and loan• Ancient civilizations – India – Egypt– Mesopotamia (Babylonia/Greek) – China– Mayan

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Origin of human civilization

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Indian History

• Indus Valley Civilization (BC 5000 – BC 1900)• Vedic Period (BC 1500 – BC 500)– The Vedas comprise a vast corpus of Sanskrit

poetry, philosophical dialogue, myth, and ritual incantations developed and composed by Aryans over 3,500 years ago. Regarded (by Hindus) as the primary source of knowledge and the sacred foundation of their religion, the Vedas embody one of the world’s oldest surviving cultural traditions.

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Spice Route (Ancient Trade)

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Sangam literature

• A tantalizing description of Muziris is in Akanaṉūṟu, an anthology of early Tamil bardic poems (poem number 149.7-11) in Eṭṭuttokai[15]

– "the city where the beautiful vessels, the masterpieces of the Yavanas [Westerners], stir white foam on the Culli [Periyar], river of the Chera, arriving with gold and departing with pepper-when that Muciri, brimming with prosperity, was besieged by the din of war.“

– Peppercorns were a much-prized trade good, often referred to as "black gold" and used as a form of commodity money. The legacy of this trade remains in some Western legal systems which recognize the term "peppercorn rent" as a form of a token payment made for something that is in fact being given.

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Pepper as Money

• Reason for colonisation of Kerala / India

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Muziris Project

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Mesopotamia

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Ancient Egypt and West

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Ancient Silk Road

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• Trade routes not only supplied physical goods, they facilitated the movement of people and ideas….

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World Trade Route

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Mesoamerican cultural area

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Maya Civilization• cultural developments that included

complex societies, agriculture, cities, monumental architecture, writing, and calendrical systems.

• Trade goods carried included cacao, obsidian, ceramics, textiles, food and drink for the crew, and copper bells and axes.

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Gold and Silver money

• The use of gold as proto-money has been traced back to the fourth millennium BC when the Egyptians used gold bars of a set weight as a medium of exchange

• As had been done earlier in Mesopotamia with silver bars.• The shekel was an ancient unit used in Mesopotamia

around 3000 BC to define both a specific weight of barley and equivalent amounts of materials such as silver, bronze and copper. This shekel was about 180 grains (11 grams or .35 troy ounces).

• Concept to the British pound, which was originally defined as a one-pound mass of silver.

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Paper Money• Paper money was introduced in Song Dynasty China during the

11th century.• In the 13th century, paper money became known in Europe

through the accounts of travelers, such as Marco Polo and William of Rubruck.

• The first European banknotes were issued by Stockholms Banco, a predecessor of the Bank of Sweden, in 1661.

• These banknotes were a form of representative money which could be converted into gold or silver by application at the bank. Since banks issued notes far in excess of the gold and silver they kept on deposit, sudden loss of public confidence in a bank could precipitate mass redemption of banknotes and result in bankruptcy.

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Ancient Banks

• Lenders based in temples made loans and added two important innovations: they accepted deposits and changed money.

• This began around 2000 BC in Assyria and Babylonia. Later, in ancient Greece and during the Roman Empire. Ancient China and India also shows evidence of money lending activity.

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Origin of Modern Banks

• Can be traced to medieval and early Renaissance Italy, to the rich cities in the north such as Florence, Venice and Genoa. The Bardi and Peruzzi families dominated banking in 14th century Florence, establishing branches in many other parts of Europe. Perhaps the most famous Italian bank was the Medici bank, established by Giovanni Medici in 1397.

• The oldest bank still in existence is Monte dei Paschi di Siena, headquartered in Siena, Italy, which has been operating continuously since 1472.

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Value of Money

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Gold Price in India22,000 tonnes of gold stocks kept by Indian households.

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Richest country

• 22,000 tonnes of gold stocks kept by Indian households.

• 10 – 15% World Gold Demand is from India• Import duty is 10%• 800 – 1000 tonnes added every year• This is without the collection in the ancient

chests

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PetroDollar

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