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Money Creation: Genesis 2: Goldsmith-Bankers and Bank Notes

10 Pages Posted: 6 Apr 2013  

Alexander Pierre Faure

Rhodes University

Date Written: April 4, 2013


Money creation began before the loan activities of the goldsmith-bankers in seventeenth-century London, in the form of coin clipping, coin debasement, and so on. However, money creation as we know it today (new bank loans create new bank deposits, which is the dominant means of payments) began when the deposit receipts of goldsmith-bankers became accepted by the general public as the means of payments. Almost simultaneously the goldsmith-bankers made a discovery that changed the world: that they could make loans by the writing out of new receipts (i.e. the means of payments, money). The receipts later became bank notes, and control of this monetary system was the self-imposed minimum of precious metal holdings to total bank notes.

Keywords: Money, money creation, central banking, banking, monetary policy, economic history

JEL Classification: A22, B15, E42, E51, E52, G21, N13

Suggested Citation

Faure, Alexander Pierre, Money Creation: Genesis 2: Goldsmith-Bankers and Bank Notes (April 4, 2013). Available at SSRN: or

Alexander Pierre Faure (Contact Author)

Rhodes University ( email )

Grahamstown 6140
South Africa
+27466038301 (Phone)
+27866721344 (Fax)


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