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The history of banking goes back to ancient Mesopotamiawhere the royal palaces and temples provided secure places for storing grain and other commodities.

Receipts came to be used for transfers not only to the depositors but alsoto third parties. In ancient Egypt banking started with harvests being stored in state warehouses. It was also the general method of payment of debts to other persons including tax gatherers, priests and traders.

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Banking developed earlier than coinage of money.

A simple form of banking was practiced by the ancient temples of Egypt, Babylonia, and Greece, which loaned the gold and silver deposited for safekeeping at high rates of interest. Private banking existed by 600 B.C. and was considerably developed by the Greeks, Romans, and Byzantines. Medieval banking was dominated by the Jews and Levantines.

Bank of Venice: Forerunner of modern banks

The first institution similar to a modern bank was established at Venice in 1171. It began when the Republic fell short of funds during wartime, and had to take recourse to a forced loan. The contributors to that loan were allowed an annual interest of four percent on the sums they had obliged to lend. A corporation was set up named the Chamber of Loans (later known as the Bank of Venice) to look after the process.

The corporation soon got involved in more transactions. It had begun with an initial investment, which it found useful in the business of buying and selling exchange, in time becoming a dealer in this business. Thus, it adopted the process of Discount, or lending money upon mercantile paper- an important role of modern banks.

Also, because of its highly dependable character, merchants began to keep their money in the Chamber for safekeeping. Thus the concept of Deposit, an important function of modern banking was floated.

The Bank of Venice was without a rival for many years. In the fifteenth century, similar institutions were established in Genoa and Barcelona.

Later, the Bank of England (1694) was established in London, in connection with loans to the government; the Bank of Amsterdam (1609), to receive deposits of gold and silver. Banking developed rapidly throughout the 18th and 19th centuries, accompanying the expansion of industry and trade, with each nation evolving the distinctive forms peculiar to its economic and social life.

A Brief History of Banknotes

The first recorded use of paper money was in the 7th century in China. However, the practice did not become widespread in Europe for nearly a thousand years.
In 1694, the Bank of England was established and almost immediately started to issue notes in return for deposits. The crucial feature that made Bank of England notes a means of exchange was the promise to pay the bearer the sum of the note on demand. This meant that the note could be redeemed at the Bank for gold or coinage by anyone presenting it for payment.

These notes were handwritten on Bank paper and signed by one of the Bank's cashiers. They were made out for the precise sum deposited in pounds, shillings and pence.
During the 18th century there was a gradual move toward fixed denomination notes, which by 1745 were being part, printed in denominations ranging from £20 to £1,000. In the latter half of the century gold shortages caused by war and revolution led to the production of £10, £5, £2 and £1 notes.

The first fully printed notes appeared in 1855 relieving the cashiers of the task of filling in the name of the payee and signing each note individually. The phrasing "I promise to pay the bearer on demand the sum of ..." was introduced at this time and remains to this day.
In 1833 the Bank's notes were made legal tender for all sums above £5 in England and Wales.