The Magic Coin

Chapter 4

THE ORIGIN OF BANKING

As the bright light faded, Lily could see, hear, and smell horses. She was wearing a dress like all the other girls in town, and she was holding Newton in her hand.

They were on a cobblestone street lined with storefronts. She could see inside some of the stores through the wavy-looking windowpanes—it reminded her of the candy store back home.

“Welcome to early seventeenth-century London!” Newton announced. “As you can see, there’s a bustling economy. People are keeping their shoes on their feet and trading with coins made of precious metals like gold and silver.”

Lily saw goods for sale and prices on little signs. Across the street, a vendor was swapping one sign for a new one with a lower price.

Newton saw that Lily was watching the price change. “He has just decided to decrease the price of his butter because he estimates that he will earn more money as a result. All the merchants can use money prices to help them make decisions like this.”

“I can see how having numbers like that makes it easier to do business,” Lily said. “It’s nice for the customers, too, because they can shop around and compare prices.”

“THAT’S RIGHT!” Newton said. “Let me show you something else down the street.”

Lily walked down the street, admiring the charm of the marketplace. She noticed that people weren’t carrying as much as they were in the primitive village. Instead, they had little coin bags.

“It looks easier to trade here than in the last place,” Lily remarked. “You don’t have to carry around shoes or eggs. You can just carry the coins you want to spend, and you know that everybody will accept them.”

“Great point, Lily!” Newton replied. “Not only are the coins a medium of exchange, but they are a widely accepted medium of exchange—that makes them money, by definition.”

Once Lily reached the street corner, Newton said, “Ok, we’re here! What do you see?”

Lily watched people entering and leaving the building on the corner. “People are bringing in jewelry and other stuff made out of gold and silver, and they are leaving with coins.”

“Yep! This is a goldsmith bank. They’ll take those items, melt them down, and mint them into shiny new coins. They can also keep people’s money safe. You can bring your coins in, and they’ll give you receipts so you can come withdraw your coins at any time.”

Lily saw a man go in with some coins and then leave with some pieces of paper.

Newton said, “Those are banknotes—receipts for his coin deposit.”

“Paper is even easier to carry around,” Lily replied. “It would be much easier to use those than coins for big transactions.”

“Yes, but there is a catch. Let’s

F A S T - F O R W A R D

a few years.”