Ferguson, The Ascent of Money, chapters 1 and 2 in regard to these questions:
What is money? Where and when did it develop?
According to Ferguson, money has been available for a period. Money is described as affordable, durable, fungible, portable and reliable and since the ancient moments metals such as gold and silver were used as money. Coins developed since 600 BC at the Temple of Artemis in Turkey. During the reign of the Roman Empire, coins were manufactured using Gold, silver and bronze. The standardized coin developed in china in 221 BC and the silver coins were used during the reign of Charlemagne (Ferguson 32). The shortage of these metals has developed a huge problem in the current economy. In Spanish silver was pillaged by conquistadors in Mexico. Currently, the paradigm has developed as individuals no longer depend on gold, silver or other metals to use as money in coin form. Majority of them utilize paper money also referred as notes and the electronic money. Money is essentially a matter of belief and relies on the relationship between the lender and borrower. Money is increasingly intangible and according to Ferguson, all the cash in American banks (M2) represents 11% of the total cash.
What role did banks play in this development?
According to the 14th century, it was evident that Italy was the only country with the main financial stability in the entire world. They dealt the foreign exchange dealers that were started with the implication of Bills of Exchange. It was evident that if a certain sum was not settled until the end of a transaction, creditors took the initiative of drawing a bill to the debtors. This bill proved to be a profiting source of income. However, the action of the Mediccis was condemned by churches, although the bill discounting transactions were highly accredited. The Mediccis maintained a systematic book of accounts despite the hostility and the resistance thy encountered through diverse parts of the population (Ferguson 54). The Mediccis contributed to the development of banking system and the diversification of other financial institutions. The development of the cashless transactions has ensured that there is fractional reserve banking and monopolies. Credit simplifies all the bank’s assets, for example, loans. Banks maximize the difference between the returns on assets and the costs gained on the liabilities while maintaining adequate reserves that avoid run on banks. Various banks develop aiding in the finance domestic and international trade through the discounting of bills extracted from different merchants. Banks have supported entrepreneurship although currently it accommodates people who have money and those who lack money. The European banks have been lending more money compared to the total deposit they acquire, the loans banks have an outstanding in major economies that are 150% worth of the economies in the GDP, which has true credit boom compared to their earlier decades.
During the 17th century, there was a foundation of three distinct novel institutions, which were designed to serve the public as well as the private financial systems. The Amsterdam Exchange Bank also referred as the Wisselbank, was developed in the year 1609 in order to solve all the practical problems instituted by the merchants (Ferguson 49). Eventually, the Swedish Riksbank was established in the year 1656, and it performed similar functions to those of Wisselbank. They were indulged in the activity of lending and facilitating commercial payments. The third innovation was the Bank of England that was instituted in the years 1694. It was designed in a manner that aided the government with the finance war through its endowed unique privileges, from the year 1709; it was the only bank that allowed banknotes and transactions of accounts.
What are bonds and what is their importance?
After the development of banks, the bond market marked the second development that had ascent of money. Currently, bond markets play a significant role in the management of the economy. The bond market set out long term interest rates for the entire economy although most of the savings are incurred in the bond markets (Ferguson 72). Wars led to the development of bond markets. This is because of their ability to finance rebellion against the markets based on the Government debts, a result of the Italian Renaissance.
This has been focused on London making it a major superpower, and the government has taken the initiative of consoling the dominant securities. After the development of bank, the rise of bond was the second best revolution based on the revolution of money. The government issues bonds and grants as a way of borrowing money from a wide group of people and organizations. This has led to the development of modest towns all over the world. The market for bonds has developed to a huge number. The estimate value of globally traded bonds today is around $18 trillion
Work Cited
Ferguson, Niall. The Ascent of Money: A Financial History of the World. New York: Penguin Press, 2008. Print.
