The origin of banking was a place where you could leave your coins for safekeeping or lend it for interest. In exchange you would get an IOU. These IOUs became standardized and non-personal and would circulate much like an alternative currency. The borrowers soon discovered that as the IOUs circulated, they were not all redeemed. Thus it was not necessary to keep enough specie (i.e. coins) to be able to pay all outstanding debt. In some cases, the issuer of the IOUs where originally governments, but usually they where private banks or trading houses
The system of IOUs often evolved into formal paper bills, that could be redeemed into physical metal. In different times and places, the evolvement of paper money has been different. In certain cases, the IOU stage has been skipped entirely while in other, it has lasted for a long time.Read More
Money was one arguably the most important invention for development to take place. Money has been independently invented at one time or another in each important civilization in the history of the world. There is also remarkable similarity in how the concept of money has evolved in different times in history and in different parts of the world.
Historically, money has usually gone through four stages. In the first stage, money is made of a rare material, and the value of the money is determined by the amount of the material it contains. In the second stage, money is made of another material, such as paper, with no inherent value but can be exchanged into the physical stuff. In the third stage, money cannot be exchanged into anything physical, but its value is determined by law or custom. In the fourth and last stage, inflation increases to the point that money becomes virtually worthless. Read More
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