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1 Give a synopsis of the development of the concept of banking There are a number of innovations in the emergence of the concept of banking These include the depository operations of metal smiths written orders to pay bank notes The recognition that depositors typically withdraw only a small fraction of the valuables which they have on deposit the possibility of lending gold while it is on deposit and ultimately the possibility of lending a multiple amount of the deposited gold as long as borrowers make payments to parties all of whom redeposit the borrowed gold back in the same bank There are many events of discovery and innovation which occurred in the emergence of money and banking The process started with the recognition by metal smiths that they could earn income for depository services Depository receipts issued for gold and silver on deposit consisted of liabilities of the depository which the holder could use to redeem the specified amounts of gold or silver The depository receipts could be transferred to second third and subsequent parties who could redeem them for gold or silver depository receipts thus were fledgling examples of paper currency Deposit customers discovered that they could write orders to pay to second parties who could redeem them for gold or silver at the depository and these written orders to pay were the precursors of modern checks Gold and silver placed on deposit tended to remain on deposit for extended lengths of time typically only a small proportion of the gold and silver on deposit would be withdrawn on any day Depository operators discovered that the bulk of the gold and silver on deposit could safely be loaned at interest as long as an adequate proportion of all of that on deposit was reserved to meet withdrawal demands The adequate proportion became regarded as reserve ratio and metal smiths now functioning both to receive
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