A goldsmith banker was a business role that emerged in seventeenth century

London London is the capital and largest city of England and the United Kingdom, with a population of just under 9 million. It stands on the River Thames in south-east England at the head of a estuary down to the North Sea, and has been a major s ...

from the London

goldsmith A goldsmith is a metalworker who specializes in working with gold and other precious metals. Nowadays they mainly specialize in jewelry-making but historically, goldsmiths have also made silverware, platters, goblets, decorative and serviceabl ...

s where they gradually expanded their services to include storage of wealth, providing

loan In finance, a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations, etc. The recipient (i.e., the borrower) incurs a debt and is usually liable to pay interest on that de ...

s, transferring money and providing

bills of exchange A negotiable instrument is a document guaranteeing the payment of a specific amount of money, either on demand, or at a set time, whose payer is usually named on the document. More specifically, it is a document contemplated by or consisting of a ...

that would lead to the development of

cheques A cheque, or check (American English; see spelling differences) is a document that orders a bank (or credit union) to pay a specific amount of money from a person's account to the person in whose name the cheque has been issued. The per ...

. Some of the concepts were brought over from Amsterdam where goldsmiths would provide gold storage and issue chits that started to be used as a means of exchange. The goldsmith banker became a key development in the

history of banking The history of banking began with the first prototype banks, that is, the merchants of the world, who gave grain loans to farmers and traders who carried goods between cities. This was around 2000 BCE in Assyria, India and Sumeria. Later, in an ...

that would lead to modern banking.

History

Their emergence was gradual: exchanging goldsmiths, who dealt in coinage, started to become recognised as carrying out a different activity from a working goldsmith in the 1630s. Prior to that date banking in London was principally carried out by foreigners, generally Italians, Germans, and the Dutch. However this innovation led to an indigenous banking tradition. The seizure of bullion held on safe deposit at the

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in 1640 created anxiety about the safe storage of valuables, which was further increased during the

English Civil War The English Civil War (1642–1651) was a series of civil wars and political machinations between Parliamentarians ("Roundheads") and Royalists led by Charles I ("Cavaliers"), mainly over the manner of Kingdom of England, England's governanc ...

, which also disrupted the regular work of the working goldsmiths. They soon developed accountancy practices to keep track of deposits. Then they also started paying interest on deposits so they could loan out increasing quantities of gold. The depositor was given a receipt with their name and the amount of the deposit. Such receipts became negotiable and thus evolved into the bank note. Whereas before the Civil War the London goldsmith bankers had largely been creditors, following the

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in 1660 they became the biggest debtors in England. As the system evolved, the goldsmith bankers developed a form of

Fractional reserve banking Fractional-reserve banking is the system of banking operating in almost all countries worldwide, under which banks that take deposits from the public are required to hold a proportion of their deposit liabilities in liquid assets as a reserve, ...

, which whilst still restricted as individuals, enabled them ''as a group'' to create credit out of thin air. In the 1660s George Downing, the

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, implemented a project outlined by Sir William Killigrew to side-step the power of the Goldsmith bankers. In
A proposal, shewing how this nation may be vast gainers by all the sums of money, given to the Crown, . . .
' (1663) Killigrew had advocated that the government issue £2m in transferable bonds, with the interest being covered by a yearly tax of £300k. The bonds would be for denominations between £5 and £100, mostly in the smaller denominations. The state would provide a regulatory framework to avoid fraud and ensure they were accepted as legal tender. However, by 1672 most of the orders were in the hands of a handful of such bankers, and so ended up increasing their power.

References

{{reflist 17th century in London Banking occupations History of banking

History

Further reading

References