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Focus on Spread of Knowledge

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Last updated date: 29th Mar 2024
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Beginning Financial History of the World

The origin of the Financial Institute (Banks) is considered in Italy in medieval times which was based on knowledge of mathematics acquired from wide-reaching trade interactions.


Liber Abaci, a book by Leonardo Fibonacci introduced concepts of mathematics of India and Islam to Europe and used its applications specifically to finance and commerce.


The establishment of the financial institutes made trade and transferring funds over long distances easier.


According to the records of the history of Rome, Greece, Egypt, and Ancient Babylon have given evidence that temples used to provide loan money along with keeping it safe. Therefore temples were ransacked during war or battle as most temples functioned as the financial centres of their cities.


Financial Institute in Ancient times

The history of the financial institutes started when empires and dynasties realized the need for a method of paying foreign goods and services with something that could be easy to exchange. Various variable sizes of coins and metals came in use in place of fragile, impermanent paper bills.


There was a need to keep coins a safe place and the home of ancient times did not possess steel safes. Rich and upper-class people used to keep their coins and jewellery in the basements of temples. Priests or workers of temples used to be devout and honest and also there were facilities of armed guards. Hence people used temples as financial lockers in ancient times.


Early Banking

Full-fledged financial institutes emerged in medieval times that are called banks with the formation of organizations that used to deposit and lend money and the creation of generally spendable I owe you that could serve in place of commodity money. Some of the events of early banking are mentioned below.

  • Principles of Lending (1728 B.C. – 1686 B.C.) - The Code of Hammurabi is a code one of the earliest and more complete written legal codes from ancient times that contains 150 paragraphs that deal with matters pertaining to loans, interest, pledges along with guarantees. 

  • Creation of Money (640B.C. –  630 B.C.) - A standardized coin called Lydians was used in ancient Anatolia in Turkey which was made from electrum (unit of commerce) in order to simplify transactions.

  • Roman Empire (1st Century AD) - During this time the finance system and trading were in a stable condition and the empire was far-flung.

  • Italy (Middle Ages) - Cities and states of Italy emerged as the first international banking centres using coins (florin in Florence 1252 and ducat in Venice) because of their central location.


Italian Banking

The Medici Bank of Italy was the most famous bank which was established in 1397 by Giovanni Medici. It was the largest and most trusted bank in Europe in its time. The Medici of Florence were the most successful Italian family to take up banking. The Medici established branches of their bank in major cities throughout Europe from the late 14th century until the end of the 15th century. The Medici made money because they had branches in different cities which helped them to take advantage of changing exchange rates and therefore to avoid committing the sin of usury. 


A bill of exchange has the main advantage that it can be redeemed at any branch of Medici Bank. The Medici Bank became so trustworthy that not only trades and merchants but kings and Popes borrowed money from the Medici and other major banking families. Before the expansion of banking one else was able to lend a huge amount of money because in the war the empire needed a huge fund. Hence also helped the kings and their officers to protect their nation. Thus banking families became very powerful and played an important role in politics as well as economics.


Focus on knowledge: Financial Institutions

Financial institutions focus also on the development of the economy of the nations and stand on the frontline in periods of financial emergency. These institutions provide different types of financial services to the customers such as giving an attractive rate of return to their regular customers. Banks and other institutions promote direct investment and make the customers understand the risk associated with that as well. Even in the present-day people of rural areas are not aware of the knowledge of banking so some programs should be conducted to focus on spreading knowledge of Financial institutions. They play an important role in managing an emergency in the financial markets or in the nation. Financial institutions are helpful in the development of the economies of a country. The rate of return provided by such institutions is higher compared to any other place. Hence very useful for the people who used to make money from the moneylender.


Do you Know?

The banking system of the US was the largest in the world by the year 1907 and there were over 30,000 banks in the United States in the early 1920s.


Conclusion

Financial institutions from ancient to modern times emerged as the best way of investing money as they provide a good return on the invested amount of money. Financial institutes such as the banking system are playing an important role in managing the economy of nations by providing advanced and unique methods to keep money safe.

FAQs on Focus on Spread of Knowledge

1. What was merchant banking in Medieval times?

Merchant bankers of Europe gave strength to the development of banking by offering consideration in order to assist merchants in making distant payments with the help of bills of exchange instead of the actual coin. The merchant banking business arose because at that time international trading was started and merchants held assets at different points along trade routes. Hence a merchant accepted instructions to pay money to a party through one of his agents elsewhere; the amount of the bill of exchange would be debited by his agent to the account of the merchant banker. There were some rules of merchant banking.

2. Mention some of the functions of financial institutions?

The functions of Financial institutions are important as they provide long-term finance. Every person needs a loan or money for their needs such as study, business, home etc. hence these institutions are very important because they provide the loan. It is a smart method of investing money and keeping the money rotated in the finance market. Financial institutions are also essential for the development of the economy. Whenever there is any financial crisis in the country, banks or financial institutions try to manage it from their end first.

3. How do banks help in economic development?

The banking system is essential for the modern economic world. The banking system works for creating money by collecting the savings of the individuals and lending them out to manufacturers and businesses- people. Loans provided by banks facilitate commerce. For the purchase of raw materials and to meet other requirements, merchants can borrow money from banks. Hence it helps manufacture and business in the country and strengthen the economy. It provides security money for its customers and also helps them to earn Interest. It is playing a remarkable role in generating new capital assets.