Money and Banking Essay

Words: 3236
Pages: 13


The use of money and its transmission through the economy by means of a banking system characterise modern economies. Money has been used for thousands of years, but has evolved to more sophisticated forms and its transmission has improved over time. There have long been questions over the effects money and banking have in the economy. Frequently they have given rise to intense debate, and are seldom far from discussion on the economy's performance, prices, exchange-rates and so on. The British economy was the first to industrialize. It developed a sophisticated financial system around the same time. The relationship between the two has been a constant topic of discussion.

Beyond the point thus described changes in money can only
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Incorporation as joint stock companies in the nineteenth century brought greater capital resources and an extension of branching. In the course of the nineteenth century there was a steady process of mergers and takeovers, and then in the years 1890- 1918 there was such a flurry of this activity that the structure was transformed from one where there had been a large number of small independent banks to one where there were just a few large banks with headquarters in London but with thousands of branches around the country. (See Table 1) Nevertheless, for a long time there was the risk that the system that was so effective in raising welfare, could collapse and so damage welfare. Bank failures were frequent and financial crises common at least until around 1870. By the end of the third quarter of t e h nineteenth century British banks had evolved to a stable structure with growing branch networks. This was in contrast to the American system where there were thousands of

small banks without branches. The British structure had some - advantages and some disadvantages. The principal advantage was that it produced considerable stability. On the asset side, it allowed batiks to have diversified portfolios - lending to all kinds of industries in many parts of the country and so avoiding becoming dependent on any one sector. On the deposit side the branches drew their