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Retail Banking and Electronic Banking ( B-515)

Term Paper on The major difference among classical, modern and electronic Banking.

Submitted To
Shibli Rubayat Ul Islam

EMBA Program Department of Banking Faculty of Business Studies University of Dhaka.

Submitted By Md.Golam Mostofa ID No. 50711023 EMBA Program Department of Banking University of Dhaka.

Preface
Learning knowledge becomes worthy and useful when it is implemented in the practical field. That is why learned people say, Theoretical knowledge tests its perfection with application or Theoretical education must be backed by real life practice. The importance of practical knowledge along with academic education is increasing day by day. For this the term paper has been introduced as an integral part of the degree of Evening Master of Business Administration (EMBA). I am very much delighted to have the opportunity to prepare this assignment. I am assigned to prepare a term paper on The majore difference among classical,modern and electronic Banking. . I have applied my best effort to analyze the relevant information, conversation, websites information, journal, reference, relevant books and data. In spite of time limitation and other difficulties, I have tried our best within the shortest possible time to cover all the significant aspects of the topics.

Declaration
I, the under mentioned students of Evening Master of Business Administration (EMBA) program, Department of Banking, University of Dhaka, do hereby declare the term paper on The major difference among classical, modern and electronic Banking. done by us under the supervision of Shibli Rubayat Ul Islam, Department of Banking, Faculty of Business Studies, University of Dhaka.

Md.Golam Mostofa ID: 50711023 EMBA Program Department of Banking Faculty of Business Studies University of Dhaka.

Chapter-01 TheBeginings The revolution of 1688, which brought William and Mary to the throne, gave England a measure of political stability unknown for nearly a century. Commerce flourished, but the public finances were weak and the system of money and credit was in disarray. The goldsmith bankers had been damaged by the lax financial management of the Stuart kings. There were calls for a national or public bank to mobilise the nation's resources. Many schemes were proposed. The successful one, from William Paterson, envisaged a loan of 1,200,000 to the Government, in return for which the subscribers would be incorporated as the "Governor and Company of the Bank of England". Although the new bank would have risked its entire capital by lending it to the Government, the subscription proved popular and the money was raised in a few weeks. The Royal Charter was sealed on 27 July 1694, and the Bank started its role as the Government's banker and debtmanager, which it continues today. Openforbusiness The Bank opened for business a few days later in temporary accommodation in the Mercers' Hall in Cheapside; it had a staff of seventeen clerks and two gatekeepers. Later in the same year it moved to the Grocers' Hall in Princes Street, which became its home until 1734 when it acquired premises in Threadneedle Street. Over the next hundred years it gradually acquired adjacent premises until the present three-acre island site was secured, and Sir John Soane's massive curtain wall was erected round it. This still forms the outer wall of the Bank. Early business - the Bank moves

The Court of Directors responsible for the management of the Bank had as its first Governor Sir John Houblon, grandson of a French Huguenot refugee and a prominent city merchant. (His portrait appears on the reverse of the series E 50 note issued in 1994.) The Bank's early years were dominated by the Government's pressing demands for finance and the issue of a new coinage. The Bank also embarked upon a conventional banking business, accepting deposits and

discounting bills. As evidence of deposits placed with it the Bank issued banknotes, initially in odd sums, with pounds, shilling and pence, but later in round amounts. The Bank's notes became a widely accepted currency; people seldom doubted that the "promise to pay" (which then referred to gold coin of the realm) would be honoured. The Bank's connection with Government, the scale of its private banking business, and its position at the heart of the growing financial system of the City of London, made the Bank the national treasure house and the leading commercial bank of the day. In 1780 the Bank was threatened by a mob during the Gordon Riots, and the Government agreed to provide an overnight military guard or "picquet" for the Bank. This was not discontinued until 1973 Debt and inflation

The national debt increased steadily during the eighteenth century, from 12mn in 1700 to 850mn by the end of the Napoleonic wars. Those wars put great strain on the nation's finances and in 1797 the drain on the Bank's gold reserves made it necessary to stop paying out gold in exchange for the Bank's notes. This "Restriction Period" lasted until 1821, and during it the Bank issued 1 and 2 notes for the first time to compensate for the shortage of coin. This contributed to a general increase in prices, and there was a severe slump after the wars when financial discipline was restored. The low denomination notes also proved extremely tempting to counterfeiters, and over 300 people were hanged during the Restriction Period for counterfeiting Bank of England notes. The Bank was not the only issuer of notes at the time. Many "country" banks, as well as banks in Scotland and Ireland, issued their own banknotes. But these country banks were prone to failure, especially in the difficult trading conditions in the 1820s and 1830s, and to meet the demand for a sound currency the Bank began, from 1828 onwards, to open branches of its own in provincial towns. The 1844 Charter - sound money

In 1844 - 150 years after the Bank's foundation - a major step was taken to put the currency on a sound footing. The Bank Charter Act of that year gave the Bank a formal monopoly of the note issue in England and Wales, and a related measure required the Scottish banks, which continued to issue their own notes, to back these with holdings of Bank of England notes. As this measure took effect, the Bank became the sole monetary authority for the United Kingdom. But there was an important proviso. Mindful of the inflation that could result from the unrestrained issue of banknotes - the Restriction Period was still fresh in people's minds - the Act prevented the Bank from issuing new notes that were not matched by an increase in its gold reserve. The "fiduciary" issue - that is, the part of the note issue not backed by gold - was frozen at its 1844 level. And to make the status of the currency more visible, the Bank was required to publish a separate balance sheet for its note issuing activities; this separation of "issue" from "banking" continues in the Bank's accounts to the present day. The profits of the note issue were to be paid direct to the Treasury. The nineteenth century - banker to the banks

The 1844 Act gave the Bank the note issue, and the nation a sound currency. But it placed, in effect, a limitation on the Bank's ability to develop its commercial business, and during the nineteenth century it was overtaken in size by the great joint-stock deposit banks which emerged from a series of amalgamations. The Bank chose not to compete directly with these joint-stock, or clearing banks, but to develop its role as the central bank: the guardian of the gold reserve, the supplier of liquidity of last resort. In a succession of banking crises - notably those involving Over end and Gurney in 1866 and Barings in 1890 - the Bank established the concept of lender of last resort - the ultimate reserve of the banking system. When the need arose, it would mobilize its own resources - and those of the City - when a financial crisis at a single bank threatened to spill over into the financial system as a whole. And it would routinely use this leverage over the banking system's liquidity - the ability to supply money to the banks when no-one else could - to set interest rates in London at what it judged to be the right level. While the gold standard was in place the choice of interest rate was constrained - the Bank had to set rates high enough to maintain its gold holdings. Later the choice of rate would become more a matter of discretion. Thus the two main elements of modern central banking were in place. 6

The twentieth century - the gold standard abandoned

The First World War saw the link with gold broken again, and other increase in the issue of unbacked or fiduciary currency. (On this occasion the low denomination notes were issued by the Treasury rather than by the Bank.) After the war, in 1925, an attempt was made to return to the discipline of the gold standard, but this proved unsustainable and the gold standard was finally abandoned in 1931. The gold and foreign exchange reserves were transferred to the Treasury (although they are still managed by the Bank) and the note issue became entirely fiduciary. Now the only official constraint on the issue of notes is the need to obtain a Parliamentary resolution approving an increase in the fiduciary issue. TheBankrebuilt During the 1920s and 1930s the Bank underwent a massive rebuilding. Sir John Soane's buildings, within the curtain wall, were replaced by a single structure designed by Sir Herbert Baker, extending to seven stories above ground and three stories below. The buildings were completed just before the Second World War and survived several bombs during the blitz. The Bank acquired new functions during the war, notably exchange controls which required a large staff to administer and which continued until 1979. The enlarged Thread needle Street building could not contain them all, and a new purpose-built block was constructed at New Change, near St Paul's. Since the ending of exchange controls, and the relocation of the Registrar's Department to Gloucester, most of New Change has been let to other firms. Nationalisation Throughout its history the Bank has always seen itself as a public institution, acting in the national interest. Although privately owned, for much of its life, the activities which it undertook were determined by it governing legislation and by the relationship with government. Nationalisation in 1946 did not greatly affect that; but it meant that the Bank was owned by the Government, rather than by private stockholders, and gave the power to appoint the Governors and Directors to the Crown. The nationalisation Act also gave the Government the power to issue "directions" to the Bank: thus far, the power has not been used.

If the debt which the banking companies owe be a blessing to anybody, it is to themselves alone, who are realizing a solid interest of eight or ten per cent on it. As to the public, these companies have banished all our gold and silver medium, which, before their institution, we had without interest, which never could have perished in our hands, and would have been our salvation now in the hour of war; instead of which they have given us two hundred million of froth and bubble, on which we are to pay them heavy interest, until it shall vanish into air... We are warranted, then, in affirming that this parody on the principle of 'a public debt being a public blessing,' and its mutation into the blessing of private instead of public debts, is as ridiculous as the original principle itself. In both cases, the truth is, that capital may be produced by industry, and accumulated by economy; but jugglers only will propose to create it by legerdemain tricks with paper." The modern banking system manufactures money out of nothing. The process is perhaps the most astounding piece of sleight of hand that was ever invented. Banking was conceived in iniquity and born in sin. Bankers own the Earth. Take it away from them, but leave them the power to create money, and with the flick of the pen they will create enough money to buy it back again...Take this great power away from them and all great fortunes like mine will disappear, and they ought to disappear, for then this would be a better and happier world to live in. But if you want to continue to be slaves of the banks and pay the cost of your own slavery, then let bankers continue to create money and control credit'." Chapter-02 The Origins of Modern Banking Money was originally invented as a convenient alternative to barter, an alternative without which a highly developed civilization like ours could not exist.

Imagine trying to pay the taxi driver with a bag of coal or the grocery bill with a box of spanners and a set of golf clubs. Imagine trying to carry all that around with you when you go shopping. As societies grew more complex and social roles became more specialised, the idea of money was conceived as a better and more flexible way to exchange, and thereby distribute among men, goods and services.

Money is quite simply an idea agreed upon among people that some system of tokens or symbols: discs of metal (coins) paper with symbols on it (notes) and so on, will be used by them to represent or stand proxy for goods and services and that those tokens can be exchanged for goods and services. One can then exchange the tokens rather than bags of coal, boxes of spanners or whathave-you and the tokens are easy to carry around. Its workability depends upon the participants' confidence that those tokens are and will continue to be exchangeable for a certain amount of goods or services.

That's all money is. It is no more complicated than that, although men may try to make it seem complex and hard to understand. The truth however, as truths tend to be, is simple; it is alterations of the truth lies -that are complicated.

Many societies have used gold and silver coins as their tokens, then later pieces of paper to represent gold and silver coins, and later cheques and ledger entries to represent notes and coins and in modern times electronic money, the shifting and balancing of numbers in computer memories, alongside or in place of coins, notes and cheques. Thus when we receive a computer print-out of our bank statement saying we have 500 in our current account we usually visualise a stack of l0 notes sitting in a vault somewhere, or perhaps a bag of gold coins, although in reality there is no pile of notes or bag of coins, merely the ledger-entry in an electronic memory Saying we have 500. Should we then write a cheque in order to spend 50 of it, the numbers in our ledger change to 450 and the payee's account increases by 50, although no notes, gold or anything else move for real from notes, real one coins or real account goods or services to whenever another. we want to. Yet it works because we have confidence in it and trust it and we know we can change that 500 This evolution in the system of tokens we use to represent real goods and services comes about through a succession of bright ideas in the direction of making distribution and exchange more convenient, the movement of wealth between people smoother and faster. However, anything can be used for money, provided people agree to use it and have confidence in it. For instance dried yak dung was once used in Tibet, notched pieces of wood in Medieval England, leather discs in Medieval Europe and even cigarettes and tins of coffee in post-war Germany. The money in use in a country is called currency, from the word current, meaning prevalent, in circulation or in use.

Governments firm up that agreement and confidence by enshrining a particular system of tokens in law and demanding those tokens in payment of taxes. A particular system of creating, denominating, issuing and circulating money - currency - where backed by law and deemed by law the only recognized system, and which cannot be legally refused as payment of a debt, is called legal tender. Where barter is no longer practiced, one has to possess those tokens in order to acquire goods and services from others. It is the medium of exchange. Tokens, be they yak dung, metal discs or numbers with the '' symbol in front of them, are exchanged back and forth between people instead of goods and exchange does now usually occur without the use of tokens or the promise of tokens on the future.

The way one acquires tokens is by producing something and then selling it to someone who has expressed his want for it by offering us some of his tokens. We do the deal and receive the tokens he has offered. Now we can go and exchange those tokens for other products that we desire, which we do not produce ourselves. Thus money enables goods and services to be exchanged among people and distribution of those goods and services to occur naturally, and according to the needs and wants of the participants.

The more of those tokens one possesses or is able to acquire through one's production, the more one can if one wishes acquire goods and services from others. One can also store money in a safe or bank account without having to build a couple of warehouses in which to store container-loads of spare goods. Money therefore confers exchange power or spending power on he who possesses it in direct ratio to the amount of it he is able to offer up for exchange. GOLDSMITHS In the old days gold was minted into coins and those coins, along with silver coins, formed the nation's currency. Goldsmiths had strongboxes and vaults in which to securely store the precious metal with which they worked. It was natural enough then that other people took to asking the goldsmith to store their gold and gold coins in his vault and to pay the goldsmith for the service. A merchant (for example) would entrust to the goldsmith 20 worth of his own gold for safekeeping. When he handed over his gold, the goldsmith would provide him with a receipt or note promising to hand back the gold (pay the bearer on demand) whenever the depositor returned and presented the note. The receipt held by the depositor was in fact as good as gold because he could exchange 10

it for his 20 worth of gold any time he chose. But the note was easier to carry around than heavy and bulky amounts of gold and easier to conceal, so the depositor was often content to leave his gold in the goldsmith's safekeeping for long periods. In fact when the time came to pay for some commodity with his 20 of gold, instead of returning to the goldsmith, exchanging the receipt for the gold and then using the gold to pay for his purchase, it was more convenient for him simply to hand over his receipt to the seller. The seller was happy to accept the receipt in lieu of actual gold because it was more convenient to carry around and he knew that should he present it to the goldsmith, 20 of gold would be handed over to him.

Thus those gold receipts began to circulate and became the first paper money. People were happy to exchange them back and forth rather than the cumbersome gold they represented. The receipts had value because people were confident that in the goldsmith's vault lay the gold, which they could redeem at any time.

Eventually the goldsmiths noticed that the gold left by depositors remained in their vaults for longer and longer periods. People turned up wishing to exchange their receipts for gold less and less often, and that the receipts they had issued to depositors circulated in its stead. It seemed a shame to have that gold just sitting there doing nothing. Why not lend some of it out for a while? If it just sat there for year after year the owner, the holder of the receipt, was not going to miss it if it were loaned to someone else for a period.

As long as there was enough gold in the vaults to satisfy anyone who did turn up with a receipt, then no-one would be any the wiser. So depositor Joe would leave 20 of gold with the goldsmith for safekeeping and depart with his receipt which he would then use as money in lieu of the gold and it would circulate. It might be years before anyone turned up with that 20 note asking for 20 of gold. Meanwhile Tom would turn up at the goldsmith's asking to borrow 20 of gold and the goldsmith would lend it to him, demanding that it be paid back after a certain period at a certain amount of interest. But instead of lending Tom actual gold, the goldsmith would draw up a 20 receipt, just like the one depositor Joe had been given. Tom was happy to take the receipt in lieu of the gold because it was more convenient to carry around and people were happy to accept such receipts in payment for things.

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So Tom went off with his 20 note, content that through it he was now in temporary possession of 20 of gold. But unbeknownst to Tom, Joe also has a receipt representing that gold. In other words there are now two notes in circulation representing the same 20 of gold! Clearly the goldsmith's issuance of two receipts for the same amount of gold is fraudulent - particularly when Tom repays the gold he believes he has borrowed in real gold. As each receipt promises to hand over the same 20 of gold on demand, the goldsmith is making a promise he knows he cannot keep. Several things are clear at the moment the second receipt was issued and entered circulation: new money has been created out of thin air; that new money has been loaned into existence; as the loan has interest charged upon it, then a debt has been created out of nothing that is greater than the amount of new money created.

And another thing: Tom will eventually return to the goldsmith and repay his 20 loan, say at 10% interest. He will therefore hand the goldsmith, 22 in real gold. In other words, the goldsmith, in creating that bogus receipt and lending it to Tom, is creating for himself, albeit after a delay, real debt-free gold worth more than the new money he loaned into existence! It gets worse. After a while the goldsmith, seeing that his fraud is working pretty well, thinks that if he can issue two 20 receipts against the same 20 of gold, then why not two, three or even four? So Joe deposits 20 of gold and the goldsmith gives him his receipt. In time four other people turn up at his shop wanting to borrow that 20 of gold. The goldsmith obligingly lends it to each of them at interest, giving each a receipt purporting to represent that 20 of gold. There are now five receipts in circulation representing the same deposit of gold, one for the original depositor and one for each of the four borrowers. For that deposit of 20, 80 (4x 20) of new money is created merely by writing on a fancy piece of paper.

If(say) 2 of interest (10%) is charged on each loan, at the same time that 80 of new money is created out of thin air, a debt of 88 is also created out of thin air.

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Property is held as security against these loans so if the borrower fails to repay with real gold the fraudulent piece of paper he borrowed, the goldsmith takes his property.

Each time the goldsmith lends 20 of bogus gold he charges 10% interest on the loan. By lending out 20 four times over and charging 2 interest on each loan, the goldsmith makes a whopping 40% (four times 2) in interest on the 20 "reserves" that were not even his to begin with! The goldsmith cannot lose and soon begins to amass a fortune from his fraud. It is the greatest get-richquick scheme ever invented. And it is, in essence, the basis of the modern banking system. The goldsmiths of yesteryear became the bankers of today and although paper money and latterly electronic money took over from gold, essentially the same fraud is being run. BANKERS The business of lending pieces of paper pretending to be gold made the goldsmiths very wealthy and very influential men. Their easy wealth enabled them to move to upmarket premises. They became pillars of the community and some even became international financiers, lending money to kings and governments.

In the seventeenth century conflict between the bankers of the day and the Stuarts led the bankers to act in concert with bankers in Europe. They joined forces with those in the Netherlands to finance the invasion of England by William of Orange. William overthrew the Stuart Kings in 1688 and became King William III.

By the end of the 1600s England was in financial ruin, gold and silver supplies were running low and a costly civil war followed by costly wars with France and Holland, all in a fifty year period, had left her heavily in debt.

Government officials met with the financiers to negotiate the loans they needed. King William was 20 million in debt and he could not pay his army. Apparently it did not occur to William or anyone that if William needed to pay his army or get the economy going, all he had to do was have the government print its own money and use that to pay the troops -something that Abraham

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Lincoln would do successfully during the American Civil war nearly two hundred years later! King William's "friends", the bankers, were willing to loan him the money he needed but the price they wanted for their "help" was high. They wanted a government-sanctioned but privately owned central bank that could; through fractional reserve lending, create money out of nothing and loan it to the government.

They got their way. In 1694 the world's first privately owned central bank was created. It was to be called the Bank of England. The Bank's charter included the following immortal words: "The bank hath benefit on the interest on all monies which it creates out of nothing." Instead of exercising its right to create money and spend it into the economy, the government had the bank create it, then lend it to the government so that the government could spend it into the economy, then pay the loans back later at interest. That completely unnecessary complication was to have devastating consequences for the futures of the English people.

As well as delivering extraordinary power over the nation into the hands of a privately owned business corporation, it began the National Debt, a debt that would go on increasing remorselessly over the ensuing years until it had reached around 380 billion in 1996, costs us around 30 billion a year in interest payments and is still climbing.

By the end of the 17th century, the goldsmiths' scam had become respectable banking. The role of the banks in issuing money through lending to individuals and businesses had already become widely accepted. Thus there came to be established two routes by which money was borrowed into the economy: private and commercial borrowing on the one hand and government borrowing on the other. That combined debt in the present day has now soared to well over one trillion pounds. In 1704, just ten years after the creation of the Bank of England, the banks' promissory notes, on the recommendation of the bankers and financiers who advised the government, were declared legal tender.

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Although the new central bank was an entirely privately owned corporation, the name chosen for it led generations of Englishmen to believe that it was part of their government, when it most certainly was not. Like any other privately owned corporation the new central bank sold shares to create its initial capital. Its investors - whose identities were never disclosed - were supposed to put up a total of 1 million in gold coin to purchase their shares. Only three quarters of a million was ever received.

Nevertheless, despite that minor technicality, the bank was chartered in 1694 and began the business of lending out several times the money it supposedly had in its reserves. In exchange for this unique and immensely profitable privilege, the bank would very kindly lend the English, and later British, government as much money as it wanted, at interest, provided the debt was secured by direct taxation of the people.

THE MODERN INCARNATION OF FRAUD What happens when you or I, or for that matter the government, borrow money from the bank? Prepare yourself for a surprise.

Let's say we want to borrow a 100,000 mortgage on a house. The bank or building society does what the goldsmith did and creates 100,000 out of thin air. Instead of handing us a paper certificate, it simply credits our bank account with the 100,000 and registers that 100,000 as a debt, with (say) a further 100,000 interest over 25 years. The money is simply penned into our account without any account anywhere being debited the loaned money. New money is therefore created. Alongside it a debt (in this case 100,000 plus the roughly 100,000 of interest) is created. When we repay the debt, the interest is accounted as income for the bank. The 100,000 we originally borrowed is withdrawn from circulation and is accounted as collateral for further lending, loaned back into circulation when someone else borrows.

Our house is held as security so if we fail to keep up our repayments, the creditor takes possession of it. The repayments themselves can vary through no fault of our own, according to interest rates 15

set

by

the

banking

industry.

After 25 years of blood sweat and tears we finally pay back the last installment of the 200,000 capital-plus-interest we owed and the house in finally ours. It is not ours until that point. The lender, who loaned us money which did not exist until the moment he created it out of nothing, winds up with 100,000 of interest on the loan: that is real, spendable income that comes courtesy of our real work and real wealth creation. The numbers have been simplified to highlight the nature of the fraud and in practise the process is hidden under a great deal of complexity but this in essence is the process of money creation.

Each time the banks create money they create a debt that is greater than the spending power they create. One can see too that each time they are creating a debt for the borrower, they are ultimately creating debt free money for themselves.

Before the goldsmiths' scam began, the money in circulation was hard currency - usually gold or silver minted into coins which then circulated as the tokens used to represent goods and services. That minting and circulation of coinage was usually administered by the government or king. However as soon as the goldsmiths' certificates became used in lieu of gold, paper money had made an appearance. As soon as the goldsmiths began issuing paper notes for gold they did not actually have, the goldsmiths were themselves creating new money and lending it into circulation.

Money was originally invented as a convenient alternative to barter, an alternative without which a highly developed civilisation like ours could not exist. Imagine trying to pay the taxi driver with a bag of coal or the grocery bill with a box of spanners and a set of golf clubs. Imagine trying to carry all that around with you when you go shopping. As societies grew more complex and social roles became more specialised, the idea of money was conceived as a better and more flexible way to exchange, and thereby distribute among men, goods 16

and services. Money is quite simply an idea agreed upon among people that some system of tokens or symbols: discs of metal (coins) paper with symbols on it (notes) and so on, will be used by them to represent or stand proxy for goods and services and that those tokens can be exchanged for goods and services. One can then exchange the tokens rather than bags of coal, boxes of spanners or whathave-you and the tokens are easy to carry around. Its workability depends upon the participants' confidence that those tokens are and will continue to be exchangeable for a certain amount of goods or services. That's all money is. It is no more complicated than that, although men may try to make it seem complex and hard to understand. The truth however, as truths tend to be, is simple; it is alterations of the truth - lies -that are complicated. Many societies have used gold and silver coins as their tokens, then later pieces of paper to represent gold and silver coins, and later cheques and ledger entries to represent notes and coins and in modern times electronic money, the shifting and balancing of numbers in computer memories, alongside or in place of coins, notes and cheques. Thus when we receive a computer print-out of our bank statement saying we have 500 in our current account we usually visualise a stack of l0 notes sitting in a vault somewhere, or perhaps a bag of gold coins, although in reality there is no pile of notes or bag of coins, merely the ledger-entry in an electronic memory Saying we have 500. Should we then write a cheque in order to spend 50 of it, the numbers in our ledger change to 450 and the payee's account increases by 50, although no notes, gold or anything else move from one account to another. Yet it works because we have confidence in it and trust it and we know we can change that 500 for real notes, real coins or real goods or services whenever we want to. This evolution in the system of tokens we use to represent real goods and services comes about through a succession of bright ideas in the direction of making distribution and exchange more convenient, the movement of wealth between people smoother and faster. However, anything can

17

be used for money, provided people agree to use it and have confidence in it. For instance dried yak dung was once used in Tibet, notched pieces of wood in Medieval England, leather discs in Medieval Europe and even cigarettes and tins of coffee in post-war Germany. The money in use in a country is called currency, from the word current, meaning prevalent, in circulation or in use. Governments firm up that agreement and confidence by enshrining a particular system of tokens in law and demanding those tokens in payment of taxes. A particular system of creating, denominating, issuing and circulating money - currency - where backed by law and deemed by law the only recognized system, and which cannot be legally refused as payment of a debt, is called legal tender. Where barter is no longer practiced, one has to possess those tokens in order to acquire goods and services from others. It is the medium of exchange. Tokens, be they yak dung, metal discs or numbers with the '' symbol in front of them, are exchanged back and forth between people instead of goods and exchange does now usually occur without the use of tokens or the promise of tokens on the future. The way one acquires tokens is by producing something and then selling it to someone who has expressed his want for it by offering us some of his tokens. We do the deal and receive the tokens he has offered. Now we can go and exchange those tokens for other products that we desire, which we do not produce ourselves. Thus money enables goods and services to be exchanged among people and distribution of those goods and services to occur naturally, and according to the needs and wants of the participants. The more of those tokens one possesses or is able to acquire through one's production, the more one can if one wishes acquire goods and services from others. One can also store money in a safe or bank account without having to build a couple of warehouses in which to store container-loads of spare goods. Money therefore confers exchange power or spending power on he who possesses it in direct ratio to the amount of it he is able to offer up for exchange. GOLDSMITHS In the old days gold was minted into coins and those coins, along with silver coins, formed the nation's currency. Goldsmiths had strongboxes and vaults in which to securely store the precious metal with which they worked. It was natural enough then that other people took to asking the 18

goldsmith to store their gold and gold coins in his vault and to pay the goldsmith for the service. A merchant (for example) would entrust to the goldsmith 20 worth of his own gold for safekeeping. When he handed over his gold, the goldsmith would provide him with a receipt or note promising to hand back the gold (pay the bearer on demand) whenever the depositor returned and presented the note. The receipt held by the depositor was in fact as good as gold because he could exchange it for his 20 worth of gold any time he chose. But the note was easier to carry around than heavy and bulky amounts of gold and easier to conceal, so the depositor was often content to leave his gold in the goldsmith's safekeeping for long periods. In fact when the time came to pay for some commodity with his 20 of gold, instead of returning to the goldsmith, exchanging the receipt for the gold and then using the gold to pay for his purchase, it was more convenient for him simply to hand over his receipt to the seller. The seller was happy to accept the receipt in lieu of actual gold because it was more convenient to carry around and he knew that should he present it to the goldsmith, 20 of gold would be handed over to him.

Thus those gold receipts began to circulate and became the first paper money. People were happy to exchange them back and forth rather than the cumbersome gold they represented. The receipts had value because people were confident that in the goldsmith's vault lay the gold, which they could redeem at any time.

Eventually the goldsmiths noticed that the gold left by depositors remained in their vaults for longer and longer periods. People turned up wishing to exchange their receipts for gold less and less often, and that the receipts they had issued to depositors circulated in its stead. It seemed a shame to have that gold just sitting there doing nothing. Why not lend some of it out for a while? If it just sat there for year after year the owner, the holder of the receipt, was not going to miss it if it were loaned to someone else for a period.

As long as there was enough gold in the vaults to satisfy anyone who did turn up with a receipt, then no-one would be any the wiser. So depositor Joe would leave 20 of gold with the goldsmith for safekeeping and depart with his receipt which he would then use as money in lieu of the gold and it would circulate. It might be years before anyone turned up with that 20 note asking for 20 of gold. Meanwhile Tom would turn up at the goldsmith's asking to borrow 20 of gold and the

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goldsmith would lend it to him, demanding that it be paid back after a certain period at a certain amount of interest. But instead of lending Tom actual gold, the goldsmith would draw up a 20 receipt, just like the one depositor Joe had been given. Tom was happy to take the receipt in lieu of the gold because it was more convenient to carry around and people were happy to accept such receipts in payment for things.

So Tom went off with his 20 note, content that through it he was now in temporary possession of 20 of gold. But unbeknownst to Tom, Joe also has a receipt representing that gold. In other words there are now two notes in circulation representing the same 20 of gold! Clearly the goldsmith's issuance of two receipts for the same amount of gold is fraudulent - particularly when Tom repays the gold he believes he has borrowed in real gold. As each receipt promises to hand over the same 20 of gold on demand, the goldsmith is making a promise he knows he cannot keep. Several things are clear at the moment the second receipt was issued and entered circulation: new money has been created out of thin air; that new money has been loaned into existence; as the loan has interest charged upon it, then a debt has been created out of nothing that is greater than the amount of new money created.

And another thing: Tom will eventually return to the goldsmith and repay his 20 loan, say at 10% interest. He will therefore hand the goldsmith, 22 in real gold. In other words, the goldsmith, in creating that bogus receipt and lending it to Tom, is creating for himself, albeit after a delay, real debt-free gold worth more than the new money he loaned into existence! It gets worse. After a while the goldsmith, seeing that his fraud is working pretty well, thinks that if he can issue two 20 receipts against the same 20 of gold, then why not two, three or even four? So Joe deposits 20 of gold and the goldsmith gives him his receipt. In time four other people turn up at his shop wanting to borrow that 20 of gold. The goldsmith obligingly lends it to each of them at interest, giving each a receipt purporting to represent that 20 of gold. There are now five receipts in circulation representing the same deposit of gold, one for the original depositor and one for each of the four borrowers. For that deposit of 20, 80 (4x 20) of new money is created

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merely

by

writing

on

fancy

piece

of

paper.

If(say) 2 of interest (10%) is charged on each loan, at the same time that 80 of new money is created out of thin air, a debt of 88 is also created out of thin air.

Property is held as security against these loans so if the borrower fails to repay with real gold the fraudulent piece of paper he borrowed, the goldsmith takes his property.

Each time the goldsmith lends 20 of bogus gold he charges 10% interest on the loan. By lending out 20 four times over and charging 2 interest on each loan, the goldsmith makes a whopping 40% (four times 2) in interest on the 20 "reserves" that were not even his to begin with! The goldsmith cannot lose and soon begins to amass a fortune from his fraud. It is the greatest get-richquick scheme ever invented. And it is, in essence, the basis of the modern banking system. The goldsmiths of yesteryear became the bankers of today and although paper money and latterly electronic money took over from gold, essentially the same fraud is being run. BANKERS The business of lending pieces of paper pretending to be gold made the goldsmiths very wealthy and very influential men. Their easy wealth enabled them to move to upmarket premises. They became pillars of the community and some even became international financiers, lending money to kings and governments.

In the seventeenth century conflict between the bankers of the day and the Stuarts led the bankers to act in concert with bankers in Europe. They joined forces with those in the Netherlands to finance the invasion of England by William of Orange. William overthrew the Stuart Kings in 1688 and became King William III.

By the end of the 1600s England was in financial ruin, gold and silver supplies were running low and a costly civil war followed by costly wars with France and Holland, all in a fifty year period, had left her heavily in debt.

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Government officials met with the financiers to negotiate the loans they needed. King William was 20 million in debt and he could not pay his army. Apparently it did not occur to William or anyone that if William needed to pay his army or get the economy going, all he had to do was have the government print its own money and use that to pay the troops -something that Abraham Lincoln would do successfully during the American Civil war nearly two hundred years later! King William's "friends", the bankers, were willing to loan him the money he needed but the price they wanted for their "help" was high. They wanted a government-sanctioned but privately owned central bank that could; through fractional reserve lending, create money out of nothing and loan it to the government.

They got their way. In 1694 the world's first privately owned central bank was created. It was to be called the Bank of England. The Bank's charter included the following immortal words: "The bank hath benefit on the interest on all monies which it creates out of nothing." Instead of exercising its right to create money and spend it into the economy, the government had the bank create it, then lend it to the government so that the government could spend it into the economy, then pay the loans back later at interest. That completely unnecessary complication was to have devastating consequences for the futures of the English people.

As well as delivering extraordinary power over the nation into the hands of a privately owned business corporation, it began the National Debt, a debt that would go on increasing remorselessly over the ensuing years until it had reached around 380 billion in 1996, costs us around 30 billion a year in interest payments and is still climbing.

By the end of the 17th century, the goldsmiths' scam had become respectable banking. The role of the banks in issuing money through lending to individuals and businesses had already become widely accepted. Thus there came to be established two routes by which money was borrowed into the economy: private and commercial borrowing on the one hand and government borrowing on the other. That combined debt in the present day has now soared to well over one trillion pounds.

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In 1704, just ten years after the creation of the Bank of England, the banks' promissory notes, on the recommendation of the bankers and financiers who advised the government, were declared legal tender.

Although the new central bank was an entirely privately owned corporation, the name chosen for it led generations of Englishmen to believe that it was part of their government, when it most certainly was not. Like any other privately owned corporation the new central bank sold shares to create its initial capital. Its investors - whose identities were never disclosed - were supposed to put up a total of 1 million in gold coin to purchase their shares. Only three quarters of a million was ever received.

Nevertheless, despite that minor technicality, the bank was chartered in 1694 and began the business of lending out several times the money it supposedly had in its reserves. In exchange for this unique and immensely profitable privilege, the bank would very kindly lend the English, and later British, government as much money as it wanted, at interest, provided the debt was secured by direct taxation of the people.

THE MODERN INCARNATION OF FRAUD What happens when you or I, or for that matter the government, borrow money from the bank? Prepare yourself for a surprise. Let's say we want to borrow a 100,000 mortgage on a house. The bank or building society does what the goldsmith did and creates 100,000 out of thin air. Instead of handing us a paper certificate, it simply credits our bank account with the 100,000 and registers that 100,000 as a debt, with (say) a further 100,000 interest over 25 years. The money is simply penned into our account without any account anywhere being debited the loaned money. New money is therefore created. Alongside it a debt (in this case 100,000 plus the roughly 100,000 of interest) is created. When we repay the debt, the interest is accounted as income for the bank. The 100,000 we originally borrowed is withdrawn from circulation and is accounted as collateral for further lending, loaned back into circulation when someone else borrows.

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Our house is held as security so if we fail to keep up our repayments, the creditor takes possession of it. The repayments themselves can vary through no fault of our own, according to interest rates set by the banking industry. After 25 years of blood sweat and tears we finally pay back the last installment of the 200,000 capital-plusinterest we owed and the house in finally ours. It is not ours until that point. The lender, who loaned us money which did not exist until the moment he created it out of nothing, winds up with 100,000 of interest on the loan: that is real, spendable income that comes courtesy of our real work and real wealth creation. The numbers have been simplified to highlight the nature of the fraud and in practice the process is hidden under a great deal of complexity but this in essence is the process of money creation. Technologies: Each time the banks create money they create a debt that is greater than the spending power they create. One can see too that each time they are creating a debt for the borrower, they are ultimately creating debt free money for themselves. Before the goldsmiths' scam began, the money in circulation was hard currency - usually gold or silver minted into coins which then circulated as the tokens used to represent goods and services. That minting and circulation of coinage was usually administered by the government or king. However as soon as the goldsmiths' certificates became used in lieu of gold, paper money had made an appearance. As soon as the goldsmiths began issuing paper notes for gold they did not actually have, the goldsmiths were themselves creating new money and lending it into circulation. One can see that this establishes debt as the basis of our currency. Where once, long ago, the British pound represented something -so much gold or silver - it now represents so much debt, which is not only nothing it is less than nothing. During the last quarter century, banking has undergone a revolution. Technology has transformed the way Americans obtain financial services. Telephone banking, debit and credit cards, and automatic teller machines are commonplace, and electronic money and banking are evolving. The techniques of bank examination have changed, too. Today OCC examiners use computers and

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technology to help ensure that the banks they supervise understand and control the risks of the complex new world of financial services. The OCC supervises national banks and enforces federal banking laws. It rules on new charter and merger applications for national banks, and conducts basic research on banking and the economy. The tools have changed, but for the OCC, the basic mission remains the same as in the days of Lincoln: to ensure a safe, sound, and competitive national banking system that supports the citizens, communities, and economy of the United States. Banking units like these interactive video systems -- which can be placed in a shopping mall, supermarket or banking branch lobby -- connect bank customers to bank product specialists who can execute transactions from a central office.

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Classical Banking:
Classic Banking is a Custom Banking Package that's easy to qualify for and offers you cost savings and enhanced access to our products and services. Classic Banking rewards you for your valued relationship with us, giving you benefits such as an interest bearing checking account, free checks, and free online bill payment.

Classic Banking Banking Benefits


Interest-bearing checking account Free exclusive design wallet style checks or a $6 credit towards another design Free BB&T Check Card with Visa Extras Free online banking with BB&T OnLine Free unlimited OnLine Bill Payment No monthly maintenance fee on one Regular Savings and/or Money Rate Savings account Bonus rates on select CDs and IRAs $20 annual safe deposit box discount No annual fee BB&T Visa Platinum Credit Card* Unlimited no-fee money orders Unlimited no-fee official checks

Service Benefits

Two no-fee non-BB&T ATM transactions per statement cycle Five free person-to-person calls through BB&T Phone24 per statement cycle Unlimited automated account inquiries through BB&T Phone24 26

Overdraft Protection

Choose from a number of available overdraft protection options:


Regular Savings Constant Credit* BB&T Home Equity Line** BB&T Visa Platinum Credit Card* Preferred Line of Credit**

E-Banking:
E banking is defined as the automated delivery of new and traditional banking products and services directly to customers through electronic ,interactive communication channels .E Banking includes the systems that enable financial institution customers, individuals or business ,to access accounts, transact business, or obtain information on financial products and services through a public or private network ,including the internet.

Online Banking:
On line banking is not changing our money habits. Instead, it uses todays computer technology to give us the option of by passing the time consuming ,paper based aspects of traditional banking in order to manage our finances more quickly and efficiently. It is popular for its convenience ,ubiquity, transaction speed, efficiency and effectiveness.

Wireless Banking:
Wireless banking occurs when a customer accesses a financial institutions networks through cellular phones, pagers and personal digital assistants via telecommunication companies wireless networks.

Tele banking:
Tele banking can be considered as a form of remote or virtual banking which is essential the delivery of branch financial services via telecommunication devices where the bank customers can

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perform rattail banking transactions by dialing a touch-tone telephone or mobile communication unit, which is connected to an automated system of the bank by utilizing Automated Voice Response technology.

SMS Banking:
SMS banking allows us to do some banking enquires on our mobile phone. SMS-Banking is developed to provide transactions related to clients card account via SMS.

Any Branch Banking:


Any branch banking is the service where an account is accessible from any branch of a particular bank. Although in Bangladesh the term is widely popularized as on-line Banking. Most of the foreign and private banks operating business in Bangladesh have started providing this facility to its customers.

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Findings: Todays banking sector are very much innovative and advanced. They have tried to give the benefit where has the exception and charm to enjoy. Every things is possible with the help of technology. Banking sector always uses the latest technology.

Conclusion: After passing a long way, todays banking sector have got a matured situation. This sector is saturated with high technology and talented people. It has transparency in works and peoples confidence. So people keep his money for safety. Now Economy of a country depends on the condition of banking sector.

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