Why is money supply not under the tight control of central banks Essay - 2

Why is money supply not under the tight control of central banks - Essay Example spite this clear relationship between money supply and banks, there are other factors that influence the control of national and international money supply and take away the full control of banks; these include personal account holders, foreign investors and various businesses and corporations. Ancient Babylonian records dating from the 18th century BC show that a rudimentary form of banking was established at that time (Leick 161). Although these early storehouses could not necessarily equate with modern banks, they did serve the purpose of storage of wealth in the form of grain, gold and other valuables. From these immense storehouses, people chose to lend and borrow based on agreements made on a person-to-person basis. Financial relationships such as these expanded in the following centuries and we can see evidence of basic banking centres from the Greeks, the Egyptians and Romans. As banking progressed, the idea of storing wealth became more complicated as people tried to decide of fair ways of paying back loans on various items (Smith 4). Seeds, which could reproduce and therefore become worth more in the end, would require an equal repayment that included interest; this was an idea that quickly took hold and has helped to define modern banking (Heichelheim 56). After the Roman Empire lost its power, banking actually became a derelict practise in most of Europe until centuries later. When it was revived in later years, banking gained the addition of one factor that would revolutionise it: hard currency (Butler et al 27). Currency became redeemable for actual products when prior to its advent, financial exchanges were completed with the end product already in hand (for example, gold exchanged for a certain amount of grain, or grain for eggs). Currency became the primary source of finance instead of a mere representation of ‘true’ finance; based on currency, interest rates and the need for people to store their wealth away safely, banks were