2.13 Commonwealth Law Form
Article 205 - Central Bank
Bank is a 15th Century term describing a body possessing certain franchised rights to create and distribute funds through the hypothecation of valuables given or granted in trust then recorded against accounts for the conduct and settlement of trade including official business of the state through the management of such accounts, funds, valuables and associated derivative instruments.
While the term “bank” or “banco” originates from the 15th Century, the concepts associated with financial services (deposits, loans, credit, bills of exchange), date as far back as the Karnak Temple and Exchange of the Hyksos in Ancient Egypt:
(i) The issue of a hypothecation or derivative such as a paper or clay certificate or token in exchange for coin or actual goods was in complete operation in the 16th Century BCE at the great Karnak Temple and Exchange in ancient Egypt. Similarly, the Romans and Persians heavily used such facilities both to mint and validate coin and to exchange and settle debts and commercial transactions; and
(ii) The Carolingian Empire from 8th Century to 10th Century greatly restricted financial practices of hypothecation (and therefore trade) in preference for the promotion of actual standard coin, which had the effect of creating a “boom-bust” environment due to a lack of capital, rise in corruption and an inability to settle debts effectively; and
(iii) The Persian and “High Moor” exiles that founded the Pisan Empire of the Western and Eastern Mediterranean were the first to reintroduce by Doga (Doge) Pietro Morosini (1088 - 1119) of Pisa and Roman Pontiff Callixtus I (II) (1119 - 1130) a stable international financial system through a semi-religious Ordo Pauperes Templum or “Order of the Poor of the (Money) Temple”, later known as the “Knights Templar”. The Pisan Knights issued certificates upon the deposit of valuables and coin at one secure fortress which could then be exchanged by the possessor of a valid certificate (bill of exchange) for coin at another sometimes thousands of miles away; and
(iv) In 1306, the network of Ordo Pauperes Templum (Knights Templar) was seized by combined forces of the Genoese and Lavagna under Count Ottobuono Fieschi of Lavagna and the French under King Philip IV of France (1268-1314). In 1339, Simon “Boccanegra” Fieschi took power over Genoa and had himself declared “Doge” including the formation of the second financial system based around Palaces called “Houses” known as the Palazzo delle Compere di San Giorgio or “House of Merchandizing of St George”. Each Palace had a public place for trade out front called the quadrate (public square) and an inner space called the cort (court) for private and exclusive business. The Genoese then established “Houses” managed by noble Genoese families at key locations around the world; and
(v) In contrast to the Genoese model of adopting a purely “public/private” model of commerce around a Palace (Palazzo) for financial services, in 1374 the Venetians adopted an ecclesiastical model by modifying St Mark’s Basilica and a created a new sacred space called the “sagrestia” (sacristy) for the operation of the camera di prestiti or “Chamber of Loans”; and
(vi) By 1401, the use of a form of financial services began in Barcelona then Valencia was the Plaza de Barcelona or “Plaza of Barcelona” whereby a large public space was divided for merchants and a section was exclusively rented as benches and tables or “banco” for moneylenders. Therefore, the association of moneylenders or loan merchants or pawnbrokers being “banco” or “banks” grew from this formalization of regular markets at a permanent space; and
(vii) In 1406, the Medici of Florence sought to control both financial services and the growing prosperity of trade by demanding an edict from Roman Pontiff Innocent VI (VII) (1404-1406) (Cosimo de Migliorati, Naples) licensed the Medici so that only the Medici could operate moneylending. Thus the Banco di Medici network controlled by a sole family was born; and
(viii) In reaction to the attempted banking monopoly by the Medici of Florence and following Roman Pontiff Gregory VI (XII) (1406-1415) (Angelo Corraro, Venice) coming to power, in late 1406 the Banco della Piazza di Rialto or “Bank of the Piazza of Rialto (Island)” or Bank of Venice was formed. However, instead of being held by one family such as the Medici of Florence, the Bank of Venice granted exclusive franchises eventually to all the ten patriarchal families representing the Council of Ten and leadership of Venice to form “Palaces” or Banking Houses. The first was Palazzo Pisani by 1408, followed by Palazzo Contarini by 1410, Palazzo Priuli by 1415, Palazzo Barbaro by 1425 and then Palazzo Gradenigo and others by 1430; and
(ix) During the 15th Century, the trade war between Genoa, Naples, Florence and Venice forced the Venetian Banking Houses to radically modify their business practices by eliminating the need for physical shipment of coin to Venice for settlement (account to account settlement), make the bank the central record of trade as well as market and exchange (Venetian bookkeeping) and agents of the bank accompanying the transport of cargo, shipments and major trade to both record details and validate the exchange remotely for the bank. These skills created out of necessity would prove to be a strength of Venetian banking in the 16th Century and beyond; and
(x) Following the near collapse of the Venetian State against the Habsburgs and Genoa, Venice and Pisan banking families pursued an aggressive stand at establishing a new form of banking intimately linked to royal families whereby the “value” was in knowledge not in stores of gold that could be expropriated by a monarch. The first of these “private partnerships” was in 1515 under Francis I (1515- 1547) of France and the creation of the Chambres des comptes (Court of Exchequer) with the Pisan exiles. The second was in 1518 and the House (Bank) of Pisano and King Henry VIII (1509-1547) of England and another Court of Exchequer. The third was in 1525 in Sweden through Gustav I (1523-1560) of Sweden and the formation of Kammarkollegium.