they probably say more about the perceptions of the colonists than about the places they visited. For one thing, many of these countries had previously used coins: the kings of Ethiopia, for example, following Roman influences, had issued coins from the third to the seventh centuries. And India, following Greek patterns, had a long and sophisticated tradition of coinage from the fourth century, which by the 16th century had flowered into more than 300 types of rupya (Hindi for ‘silver coin’).
The predilection for spotting curious types of money resulted partly from the limitations of the new arrivals who, puzzled by complex cultures they could not understand, tended to reduce them to their own simple terms. In fact many of the exchanges they observed were concerned not with commerce but with religion or social customs or hierarchy. These might indeed involve a ritual exchange of cloth or shells but not as a commercial transaction.
One example is the Lele people in what is now the Democratic Republic of Congo who exchanged cloth woven from raffia. For centuries the Lele, under Belgian colonial rule, were all too familiar with the experience of laboring for Belgian francs. But they also had a wide variety of other circumstances in which, for the purposes of forging social ties, the only acceptable payment was cloth – for fees to traditional healers, for example, or fines for adultery, or as gifts to mark rites of passage.
In fact money is often strange, but not because of peculiar forms of currency. All over the world money has evolved and mutated. Nowadays it is a complex phenomenon, based on indirect forms of credit, and appearing and disappearing at the stroke of a pen – largely because of the invention of banking, which is the focus of the next chapter.
1 F Martin, Money, the unauthorized biography, The Bodley Head, London, 2013. 2 A Mitchell Innes, ‘What is Money?’ in Credit and State Theories of Money – The Contributions of A Mitchell Innes, Edward Elgar, Cheltenham, 2004. 3 C Eagleton and J Williams, Money: A history, British Museum Press, London, 2007. 4 J Cribb, Money: From Cowrie Shells to credit cards, British Museum Publications, London, 1986. 5 JK Galbraith, Money: Whence It came, Where It Went, Houghton Mifflin Company, Boston, 1975. 6 Eagleton and Williams, op cit.
2 The creation of banks
People with money or other valuables looked for ways of keeping these safe, by storing them in the vaults of goldsmiths or pawnbrokers. But then something strange happened. These canny operatives started to multiply the contents of their vaults. And nowadays their heirs, the commercial banks, similarly create money out of thin air, or out of flows of electrons. Governments have tried to manage this financial fecundity through their central banks but have never fully succeeded.
Having pondered on the origins of cash and coinage, it is now time to take a closer look at banks. Banking too has an ancient history regularly punctuated with sorry tales of greed and disaster. The money-changers in Rome were some of the earliest practitioners. Mostly, however, they did not lend money but just changed some of the gold or silver coins of foreign traders into the denarii that could be used when operating in Rome. Indeed the word ‘bank’ derives from the benches, called ‘bancu’, from which these and other proto-bankers plied their trade. You will not be surprised that they soon also needed a term for a bank failure – ‘bankrupt’ – which corresponds to someone taking a sledgehammer to the aforementioned bench to signal the demise of the enterprise.
Banks lend money, charging varying prices for their services through rates of ‘interest’. This word derives from medieval Latin, from ‘inter’ meaning ‘between’, and ‘esse’ to ‘be’. The lender was said to ‘have an interest’ in the transactions for which their money had been borrowed, and interest subsequently came to refer to the level of compensation they charged for being deprived of the funds while someone else used them. The more devoutly religious considered this process abhorrent since it involved monetizing time – over which only the deity should have domain. They thus considered charging interest as an attempt to usurp divine power and condemned it as the sin of usury. It should be noted, however, that interest does not just involve considerations of time, but also takes into account the risk that the borrower might never repay.
Christians became more relaxed about the concept of interest from around the 11th century, not least because they wanted to borrow funds to finance wars against other religious groups – Muslims primarily, but also Jews or Orthodox Christians, or indeed anyone who rejected the authority of the Pope. This involved a series of crusades, the first of which aimed to retake Jerusalem from its Islamic occupants. From the 13th to the 15th centuries, these punitive expeditions were financed by wealthy enterprises in Venice and Genoa.
Pious though they may have been, these financiers required compensation, so they carefully devised ways of charging that made lending seem less sinful. Eventually the word usury became confined to lending at rates of interest that are excessive, though what constitutes excess is always a matter of judgment. Payday lenders are notorious for charging stratospheric rates of interest of 2,000 per cent or more – usury by any standard – but even people borrowing from Visa or MasterCard will face annual interest rates of 25 per cent or more. To this day, Islam forbids charging any interest, though Islamic scholars will advise financiers on how to get round this constraint, for a fee.
The making of modern banking
By the 17th century, elements of modern banking were starting to emerge. At that time one of the main centers of international trade was Amsterdam. The busy merchants of the city, who had money pouring in from all directions, soon found themselves dealing with a baffling array of coinage. The Dutch Republic alone had at least 14 mints that were turning out coins of all different sizes, shapes and qualities – which were then mingled with all the cash arriving from overseas. In 1606 the Dutch parliament issued a guide for the perplexed – a money-changer’s manual which listed no fewer than 341 silver and 505 gold coins.
This period amply demonstrated that ‘bad money drives out good’ – a principle articulated in 1558 by the financial agent of Queen Elizabeth I of England, Thomas Gresham, and known thereafter as Gresham’s Law. If, for example, you have what you consider an iffy dollar bill, you will be tempted to palm it off on someone else as soon as possible, while keeping in your wallet all the other bills you believe to be the genuine article. In the 16th century people had much the same attitude to coins, especially those which looked as though they might have had some of their gold clipped off. The clipped coins naturally circulated the fastest. One of the neatest anti-clipping measures was devised by the ever-busy Sir Isaac Newton who, in addition to explaining the laws of motion, and devising the infinitesimal calculus and so much more, also became warden of the Royal Mint in 1696 and suggested milling fine lines into the edges of coins so as to make any clipping more obvious.1
Dodgy coins
Coping with all this dubious coinage was at best inconvenient and at worst exposed the merchants and their customers to fraud. To cut through this financial clutter, in 1609 the City of Amsterdam established what we might now call a public bank. This cheerfully allowed people to deposit all their coins, but did so with due skepticism, evaluating their true worth by checking their weight and quality. After making a deduction for expenses, the bank would then note the true value of the coins and keep them in storage. The depositor could use these verified coins to make payments to another customer by asking the bank to shift them to that person’s storage box. The owners of the coins thus had simple ‘bank accounts’. This proved such a useful function that similar banks were established in other cities across Europe.
This also opened up opportunities for lending. If one Dutch merchant was short of cash, he or she could negotiate directly with another of the bank’s customers for a loan at an agreed rate of interest. The lender could thus instruct the bank to move the coins to the borrower’s
