Research

The concept of bank money originated with the Amsterdamsche

Wisselbank (the Bank of Amsterdam), which was established in 1609 during
Amsterdams ascent as the largest and most prosperous city in Europe. As an
exchange bank, it permitted individuals to bring money or bullion for deposit
and to withdraw the money or the worth of the bullion. The original ordinance
that established the bank further required that all bills of 600 gulden or upward
should be paid through the bankin other words, by the transfer of deposits or
credits at the bank. These transfers later came to be known as bank money.
The charge for making the transfers represented the banks sole source of
income.
There are records of loans by the temples of Babylon as early as 2000 bce;
temples were considered especially safe depositories because, as they were
sacred places watched over by gods, their contents were believed to be
protected from theft. Companies of traders in ancient times provided banking
services that were connected with the buying and selling of goods
Many of these early protobanks dealt primarily in coin and bullion, much of
their business being money changing and the supplying of foreign and
domestic coin of the correct weight and fineness. Full-fledged banks did not
emerge until medieval times, with the formation of organizations specializing
in the depositing and lending of money and the creation of generally spendable
IOUs that could serve in place of coins or other commodity moneys. In Europe
so-called merchant bankers paralleled the development of banking by
offering, for a consideration, to assist merchants in making distant payments,
using bills of exchange instead of actual coin
The earliest genuine European banks, in contrast, dealt neither in goods nor in
bills of exchange but in gold and silver coins and bullion, and they emerged in
response to the risks involved in storing and transporting precious metal
moneys and, often, in response to the deplorable quality of available coins,
which created a demand for more reliable and uniform substitutes.
In 600 B.C., Lydias king alyattes minted the first official currency. The coins
were made from electrum, a mixture of silver and gold that occurs naturally
and stamped with pictures that acted as denominations. In the streets of Sardis,
circa 600 B.C., a clay jar might cost you two owls and a snake. Lydias
currency helped the country increase both internal and external trade, making it
one of the richest empires in Asia Minor.
Money travels
The shift to paper money in Europe increased the amount of international trade
that could occur. Banks and the ruling classes started buying currencies from
other nations and created the first currency market. The stability of a particular

monarchy or government affected the value of the countrys currency and the
ability for that country to trade on an increasingly international market. The
competition between countries often led to the currency wars, where competing
countries would try to affect the values of the competitors currency by driving
it up and making the enemys goods too expensive, by driving it down and
reducing the enemys buying power, or by elimination the currency
completely.
The first recorded use of paper money was in the 7th century in China.
However, the practice did not become widespread in Europe for nearly a
thousand years.
In the 16th century the goldsmith-bankers began to accept deposits, make
loans and transfer funds. They also gave receipts for cash, that is to say gold
coins, deposited with them. These receipts, known as running cash notes,
were made out in the name of the depositor and promised to pay him on
demand.
Reference:
http://www.britannica.com/EBchecked/topic/51892/bank/273032/Specializatio
n

http://www.bankofengland.co.uk/banknotes/Pages/about/history.aspx
http://www.investopedia.com/articles/07/roots_of_money.asp