Banks & paper money

In seventeenth-century London, a merchant could leave coin with a goldsmith and walk out with a note. He could come back later for the same weight of metal. More often he signed the note over to someone else, and it paid a debt while the coin stayed in the strongroom. Paper money begins there: as a receipt for metal, a claim check.

Over the next two centuries the receipt turned into something else. Notes circulated because a bank or a state said they would, and the window that once paid metal became optional, delayed, or shut. Along the way, paper lost the public’s trust more than once — in Paris in 1720, and again in revolutionary France in the 1790s.

A receipt, then a note

A warehouse receipt is not yet a currency. It is a named claim on a named pile of metal. Banking, in the sense these histories use the word, starts when the receipt itself is used to pay. The metal stays in the vault; the paper moves. Counterparties accept the note because they trust the warehouse, not because a statute has declared the paper to be money.

Convertibility is the test. If the holder can still get coin at the window, the note is a convenient claim. If the window closes, limits payout, or pays in more paper, the note has become a bank or state liability whose value depends on policy and confidence.

Goldsmiths and a public bank

Late-medieval and early-modern Europe stored metal with people whose business was to keep it. Italian deposit banks already knew the warehouse model. London goldsmiths issued running-cash notes that merchants endorsed onward. As long as redemption was ordinary, the paper was a ticket, not a rival unit. Once the ticket paid a debt, the issuer had a float — metal it held but did not have to hand back today. From warehouses to public banks follows that handoff.

In 1609 Amsterdam created the Wisselbank (exchange bank) to take in mixed coin, credit a standard bank guilder, and let merchants settle by book entry (giro). For a long time its reputation was that it did not lend: a florin banco was a claim on metal in the vault. Bank money usually traded at a premium — the agio — over worn street coin. Later the bank made concealed advances to the city and the Dutch East India Company. When that lending became public in the 1780s–1790s, the agio collapsed. The Bank of Amsterdam tells how a public bank lost its name.

A war loan that became English money

The Bank of England was not a copy of Amsterdam. In 1694, during the Nine Years’ War, a private corporation was chartered to lend to the Crown and to issue notes. Subscribers put up about £1.2 million as a war loan. Over the eighteenth century those notes became the ordinary paper of London: national money grown from war finance, not from a city warehouse ticket.

In 1797, with France at war with Britain, the Bank stopped paying gold for its notes — the Restriction. Gold payout returned in the 1820s with resumption. The notes kept circulating through both.

Paris, 1720

France after Louis XIV carried heavy public debts. John Law, a Scottish financier with the Regent’s ear, fused a note-issuing bank with a colonial trading company. In 1716 he founded the Banque Générale, later the Banque Royale, alongside the company that became the Compagnie des Indes. Notes supported demand for shares; rising shares supported confidence in notes. Through 1719 privileges widened and prices soared while coin drained out of circulation. In 1720 the System broke, and both legs failed together.

Paper on confiscated land

Seven decades later, revolutionary France issued assignats: paper supposedly secured by confiscated church and émigré lands, the biens nationaux. The land was real. The quantity of paper rose far faster than any land was sold to retire it. By 1795–96 the assignat was not a unit anyone wanted to hold.

The Revolution needed a till. The wars needed a larger one. The biens nationaux were the advertised limit. The press was the actual one.

The twentieth-century end of the story — Weimar, the 1933 gold recall, and the 1971 gold-window close — is told in the 20th-century chapter. The coins that came before any receipt are in ancient money.