First of all we must note the fact that these institutions have changed very much in character since their origin, and consequently nowadays perform many functions unknown to those of former times. The first banks seem to have arisen in connection with the business of exchanging money. In ancient times and especially in the Middle Ages the varieties of coins were greater even than at the present day, and they were much less perfectly and honestly minted. Specialists were, therefore, required to determine their exact value and equivalence and to exchange coins of one mintage for those of another, and their services were in great demand at fairs and other places where merchants of different nations met for purposes of trade. Inasmuch as they kept their boxes or chests of coins on benches or "banken," the name bankers came to be applied to them. On account of their technical knowledge and the fact that they were obliged constantly to keep on hand considerable quantities of the precious metals, this business in the early Middle Ages was usually carried on by goldsmiths, but later it was sometimes assumed by the governments of large commercial cities, as, for example, by Amsterdam in 1609, by Hamburg in 1619, and by Nurnberg in 1621. Of these latter the Bank of Amsterdam was the most important and may be regarded as typical of these early institutions.

In the early seventeenth century the city of Amsterdam was the centre of the international trade of Europe, and accordingly the coins of all nations were there in circulation. These were of so many varieties and forms and of such different degrees of reliability, and some of them were so worn and defaced by long usage and the practice of clipping, that merchants found it difficult to keep themselves informed regarding their true worth, and were exposed to the danger of great loss if they accepted them at their face value. The city, therefore, established a bank to which merchants took their coins, receiving therefor credit to the amount of the value of the metal they contained. Payments were then made by transferring credit on the bank's books from one person to another. That is to say, a person who owed a sum of money to another accompanied him to the bank and ordered the amount transferred from his own account to that of his creditor. Bank money, as these book-accounts or the written orders to transfer them were called, thus acquired a premium over the debased and mutilated coins in circulation, and for generations constituted the basis of all the foreign exchanges of the city. It was the means of substituting order for the financial chaos which reigned previously, and contributed greatly to the prosperity of Dutch commerce.

On account of the fact that these early bankers were obliged to provide themselves with strong boxes and other facilities for protection against robbers, fire, etc., it became customary for other persons to entrust 1 to them their money and other valuables for safekeeping, and after a time this feature of their business became quite as important as money-changing and ultimately more so. A third function was assumed when bankers acquired the habit of loaning at interest the funds left with them for safe-keeping. This was made possible by the fact that their receipts, which were supposed to represent actual cash on deposit in their strong boxes, and which were redeemable on demand, were quite as readily accepted in payments as coin and thus circulated from hand to hand as money. Considerable quantities of coin thus remained with the bankers for long periods of time without being called for, and they finally acquired the habit of loaning it out at interest for short periods of time, keeping on hand only a quantity sufficient to meet current demands.

From the earliest times also, bankers have been the chief agents through which foreign exchanges have been conducted. As dealers in coin and bullion they had international connections and a knowledge of international affairs not possessed by other merchants, and were, therefore, in a position to undertake the settlement of international accounts by means of orders drawn on bankers in other countries or other cities with whom they had regular business transactions. As keepers of other people's money they also promoted saving, and banks thus became in time the chief savings institutions of the country.

The relative importance of these various functions has changed considerably with the development of industry and commerce, and a differentiation has taken place between institutions some specializing in one direction and others in another. For example, at the present time money-changing has become relatively unimportant, and is carried on only by a few banks situated in those places where travellers from one country to another need to exchange coins, and often by establishments not nowadays regarded as banks in the proper sense of that term. Some institutions emphasize the promotion and facilitation of saving almost exclusively, and are hence called Savings Banks. Others provide special facilities for the safekeeping of securities of all sorts, and are therefore called Safe Deposit Companies. Some banks specialize in the conduct of foreign exchanges, and others do almost exclusively a domestic business. According to the methods by which they conduct their affairs, some are known as banks of issue and others as banks of deposit. In this book we are chiefly concerned with the relations of banks to the currency, and shall, therefore, describe in detail only those features of the business which are essential to an understanding of such relations.