You might be wondering, ‘What exactly is there to talk about as regards the Banking Sector? ‘ I’ll simply give you two answers, a short and a long one. The short answer to that is money creation, and the long answer to that is The Great Recession caused by Banks. Now you’re asking, banks caused the Great Recession? Yes, and I’ll tell you all about that in a bit, first let’s have a bit of a recap from the beginning to this point.

Recap of the Money Series

From the very beginning parts of the series, we talked about the early history of money from cowrie shells to metals, to precious metals, and notes. We also talked about how WWI affected money and made the early guys drop off the gold standard to fix the cost of repairs and some later went back to it. Furthermore, we were able to establish that money evolved and has taken many forms before this point and all you see and know money to be now is exactly a well-planned, thought-out discussion and strategic meeting that was held before the great shock of 1971; the President of the U.S decided to get off the gold standard with the majority of the world currencies hanging on the U.S dollars. That didn’t stop anyone as a new set of agreements was drafted out, and signed after the fall of the Bretton Woods System of Monetary Management.

Now in today's world, that same system of monetary management that was enacted gave rise to the central banks and correspondent sub-banks that function in today's financial system. Today going forward, we'll be discussing the inevitable challenges that have come due to that decision in 1971 and the only viable solution in human history that was born due to these recurring challenges, which is none other than Bitcoin.

The Evolution of the Banking System.

Banking has been in existence since the first currencies were minted and wealthy people realized they needed a safe place to store their money. Ancient empires also needed a functioning financial system to facilitate trade, distribute wealth, and collect taxes. Banks were to play a major role in that, just as they do today. Temple basements, however, were seen to be the best place to save money and as such, did loan out some of these monies with interest. This practice is still seen to this day, the only difference is that ‘money creation’ has become a normal routine in today's banking system.

Adam Smith, an 18th-century Scottish philosopher, and author wrote pieces that influenced Nations' economic decisions.

Banking was already well-established in the British Empire when economist Adam Smith introduced his invisible hand theory in 1776. Empowered by his views of a self-regulating economy, moneylenders and bankers managed to limit the state’s involvement in the banking sector and the economy as a whole.

This free-market capitalism (here, private individuals are unrestrained. They may determine where to invest, what to produce or sell, and at which prices to exchange goods and services) and competitive banking found fertile ground in the New World, where the United States of America was about to emerge.

In its earliest days, the United States did not have a single currency. Banks could create a currency and distribute it to anyone who would accept it. If a bank failed, the banknotes that it had issued became worthless. A single bank robbery could crush a bank and its customers. Compounding these risks was a cyclical cash crunch that could disrupt the system at any time.

Alexander Hamilton, the first secretary of the U.S. Treasury, established a national bank that would accept member banknotes at par, thus keeping banks afloat through difficult times.

After a few stops, starts, cancellations, and resurrections, this national bank created a uniform national currency and set up a system by which national banks backed their notes by purchasing Treasury securities thus creating a liquid market. The national banks then pushed out the competition through the imposition of taxes on the relatively lawless state banks. A central body is established now? Actually no. The mortgage banks came in and stole the show due to their political and international influence as regards financing. JP Morgan and co emerged as the head of the merchants' banks during the late 1800s. They had connections directly with London, the world’s financial center as well as some good political clout in the United States.

In 1913, the U.S. government formed the Federal Reserve Bank (the Fed). Although the merchant banks influenced the structure of the Fed, they were also pushed into the background by its creation.

Even with the establishment of the Fed, enormous financial and political power remained concentrated on Wall Street. When World War I broke out, the United States became a global lender, and by the end of the war, it had replaced London as the center of the financial world.

Okay, enough history. I’ve given you the important details of how the bank has evolved till the advent of the internet in the mid-1990s which gave rise to digital banks. Fast forward to today, what is the central bank?

Let’s settle in proper into the discussion, The Banking System (an exposé) on the next part of the series ‘Money as an Agenda Vol.2’. As always, Clever Abaribote, your favorite crypto journalist.

Sources: Investopedia, Wikipedia