CHAPTER 2

BANK-MONEY

(i.) The “ Creation ” oe Bank-Money

We have seen in the preceding chapter how the trans-ference of claims to money may be just as serviceablefor the settlement of transactions as the transference ofmoney itself. It follows that members of the public,when they have assured themselves that this is so,will often be content with the ownership of trans-ferable claims without seeking to turn them intocash. Moreover there are many conveniences andincidental advantages in handling bank-money overhandling cash.

A modern bank is an institution which is madepossible by the establishment of habits of this kind.Historically a bank may have been evolved from abusiness which dealt in the precious metals or in theremittance of money from one country to another, orwhich offered its services as an intermediary to arrangeloans or for the safe custody of valuables, or whichborrowed the savings of the public on the security ofits reputation and then invested them at its owndiscretion and at its own risk. 1 But we shall beconcerned in what follows with banks of the fullydeveloped modern type existing as going concerns.

Such a bank creates claims against itself for the

1 For the actual origins in England see R. D. Richards, “ The Pioneers ofBanking in England ” (Economic Journal History Supplement, Jan. 1929).

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