The Origins of Private Banking

Can it teach us to be free of central bank cartels, worthless fiat money and return populist power?

Mesopotamia - The Birthplace of Banking

Mesopotamia's contribution to banking is undeniable. The ancient city Babylon, situated in Mesopotamia is where the foundation was established for safekeeping valuables, the introduction of clay tokens as a record-keeping system, and eventually loans, deposits, and money transfers that are familiar today.

Temple and Palace Vaults as the First Banks

People entrusted their valuables (crops, livestock, precious stones) to the most secure places - temples and royal palaces. These institutions became the first custodians of wealth, laying the foundation for banking.

Early Forms of Transactions

• Clay Tokens as Receipts: A unique system emerged where clay tokens, shaped like the deposited goods (jars for oil, animals for sheep), served as receipts. These tokens were likely stored in hollow clay envelopes (bullae) for safekeeping. The bullae exteriors might be marked with the number and type of tokens inside.

• The Code of Hammurabi and Banking Regulations: This important law code, established around 1792-1750 BCE, included provisions for banking activities, offering a glimpse into the formalized nature of these practices.

Evolution of Banking Services

• From Safekeeping to Loans: Initially, temples and palaces facilitated safekeeping. Over time, they transitioned to offering loans, particularly seed loans to farmers, who would repay after the harvest with interest. This demonstrates the concept of interest being embedded in early banking.

• Deposit Accounts and Money Transfers: The system expanded to include private deposit accounts, documented by legal texts in the Code of Hammurabi. These deposits weren't limited to valuables but also included various commodities like food grains, fruits, and agricultural equipment. Gradually, a system emerged for transferring deposits to third parties, paving the way for early money transfer mechanisms.

• Rise of Private Banking: While temples and palaces dominated early banking, private individuals eventually entered the scene by the 1st millennium BCE.

• Accounting Practices: By the 3rd millennium BCE, the Babylonians, had developed a sophisticated accounting system using cuneiform script. This allowed them to track deposits, loans, and interest calculations with remarkable precision. They even possessed knowledge of algebra and logarithms, highlighting the advanced nature of their financial system.

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Distributed Ledgers - The Foundation for the Rebirth of Trustworthy Private Banking

In my opinion, the crypto industry has made a rod for its own back. Pioneered by Bitcoin, a multitude of copycat cryptocurrencies have exposed themselves to the nefarious scrutiny of the global regulators by masquerading as money. Consequently, focus is always on the risks that this poses, leading to naïve questions about what happens when such-and-such regulator “shuts it down”.

However, if we refocus on “distributed ledgers”, rather than “blockchain”, and certainly in preference to “cryptocurrencies”, this risk disappears. Just as private banking emerged simply from the accounting of commodities, so the modern era of private banking can do the same.

A distributed ledger is nothing more than a sophisticated accounting ledger. It is more useful than clay ledgers, and even the digital databases that suffer from the risks of centralisation, but at the end of the day, that is all they are - systems of record. Systems of record carry no inherent value. Just like the ancient Babylonian ledgers, they record contracts or obligations between private parties. This is not a regulated activity so it does not warrant the legitimate scrutiny of any regulator.

Add to this fact, that distributed ledgers can and are hosted anywhere in the world, then regulation becomes impossible anyway because no single regulator can claim jurisdiction and the whole notion of being “shut down” is established as the nonsense that it is. It would require all the servers, all around the world to stop hosting and processing the distributed ledger. Even the government with the biggest self-endowed over-reach will fail in this endeavour.

It would require the one-world, totalitarian government that is most at risk of the advent of decentralisation. Fortunately, there are plenty enough nations in vehement disagreement with each other that this will never happen. Typically, it’s the ones they tell you are the “bad guys” that are more probably the ones saving you from your absolute demise at the hands of the globalists.

Banking Services in the 21st Century

Fast forward a few thousand years (apologies to Switzerland et al but your part in the history of private banking is not relevant here!), crops, livestock and precious stones still exist today like they have for the last several thousand years. Unlike the tokens that represent them (on or off a digital ledger), they still retain inherent or intrinsic value. As such, they can still perform the original (and current) functions of “money”:

1. Store of value;

2. Medium of exchange;

3. Unit of account.

And yet, since they are not masquerading as money (they are physical commodities!), they are outside the scope of regulated activity. If I want to swap a bag of flour for a pork chop with my neighbour, I can do so without permission or recourse from anyone. If I give or lend a bag of flour to my neighbour and we both keep a record of it for some time in the future (because I’m not in the mood for a pork chop right now!), this accounting is not subject to regulatory scrutiny.

If I happen to have the largest, safest larder, fridge and warehouse in my community and people without such facilities want to put their stuff in it, we can do so, keeping appropriate records, the keeping of such records per se, not being a regulated activity.

What I describe here is what is referred to currently as the “tokenization of real-world assets”. This jingoism is nothing more than the creation of a token to represent a commodity much like the clay tokens or inscriptions first introduced by the Babylonians.

However, the accounting for these tokens, representing outstanding obligations and the transfer or settlement of those obligations between private parties, is made more efficient and transparent. These digital tokens live in “wallets” that are conveniently accessed from any digital device, rather than clay bullae. Otherwise, several thousand years later, they act in pretty much identical fashion.

Depending on the quality of the commodity (its standardisation, durability, liquidity, etc.), it can naturally perform the functions of money without being promoted as such and the custodians of the underlying physical assets can become the modern-day original private banks, without ever touching fiat money and attracting the illegitimate scrutiny of the banking regulators.

And now, literally any asset or even service could be used since all we are dealing with is accounting records of obligations between parties. The recording of the obligation, and its transfer or settlement is not a regulated activity even if the underlying act itself is. Nothing changes in that respect.

The only difference with this modern evolution would be the lack of necessity of an equivalent Code of Hammurabi. The benefit of distributed ledgers is the ability to rely on the code to enforce the contractual agreements between the parties and the entire community to arbitrate disputes - everyone can attest to an obligation being recorded, even if they do not need to know the details of the obligation that are legitimately protected with encryption.

Inevitably, this can never obviate the need for all parties to evaluate the credit risk of their counterparties, it just makes it easier to readily obtain the information required to make that assessment. Eventually, it will dawn upon the crypto community that, as interesting as it is technically to produce a perfect, decentralised “money”, it fails as soon as it meets the real-world where it’s only people and things that matter.

The first nation to adopt this modern financial system will emerge as the most prosperous for its citizens but we must be under no illusion that the globalists will still try and pervert the legal systems to try and prevent it happening, or they will resort to fear mongering.