Why is money supply not under the tight control of central banks - Essay Example

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Why is money supply not under the tight control of central banks


Ancient Babylonian records dating from the 18th century BC show that a rudimentary form of banking was established at that time (Leick 161). Although these early storehouses could not necessarily equate with modern banks, they did serve the purpose of storage of wealth in the form of grain, gold and other valuables. From these immense storehouses, people chose to lend and borrow based on agreements made on a person-to-person basis. Financial relationships such as these expanded in the following centuries and we can see evidence of basic banking centres from the Greeks, the Egyptians and Romans. As banking progressed, the idea of storing wealth became more complicated as people tried to decide of fair ways of paying back loans on various items (Smith 4). Seeds, which could reproduce and therefore become worth more in the end, would require an equal repayment that included interest; this was an idea that quickly took hold and has helped to define modern banking (Heichelheim 56). After the Roman Empire lost its power, banking actually became a derelict practise in most of Europe until centuries later. ...
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Summary

The financial processes of any country, and the world on the whole, depend directly on the prosperity and availability of its banks. A bank serves as a personal finance centre for each individual but it also serves a major economic purpose by which it invests its own borrowed funds into certain businesses and organisations as it sees fit (Phillips 121-158)…
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