THE BANK OF VENICE
It remains to say a few words on the Bank of Venice. Its antiquity, which goes back to the twelfth century, that is further than any other known bank, proves the priority of the Venetians in all commercial establishments. This bank was a depot which opened a credit to investors to facilitate payments and bills of exchange; that is, instead of paying real money, cheques could be drawn on the bank. Bills on this bank could be payable at sight, and the bank always justified public confidence. In the early days there had been plenty of private banks, supported entirely by public confidence. These were principally held by nobles. Later on the government profited by suppressing them, in accordance with the law which forbade commerce to aristocrats, and established a sole national bank, placing it under the care of a prince, and taking account of all funds deposited therein. This bank was a depository pure and simple. The banker held no right of retention or commission and paid no interest. In order to insure capitalists paying in, it was necessary that the credit of the bank should be such that notes on the bank should count in business as real money.
This is how it was managed. First there was an office where cheques presented were cashed promptly in coin. By proving themselves able to do this, fewer demands of the kind were made. There were in Venice several kinds of money. The best was chosen for the bank. It was ruled that it would only take or pay ducats of full value, whose quality was finer and alloy less common. It resulted then that drawers of a bill on private bankers had to run the risk of being paid in money of base alloy, whilst the holder of credit on the bank was sure of receiving the best value. This system won bank money a preference over that of current coin and augmented the credit of the establishment.
Little by little the government introduced the custom of making certain payments in bills on the bank instead of in coin. It began by admitting these bills in public depositories without difficulty, and when this usage was established a law regulated that money would be given at the bank for bills of exchange, whether from home or abroad, when these exceeded 300 ducats. It was forbidden to refuse these bills when there was no contrary convention. This was almost giving them a forced value, yet no violence was offered to public confidence. Thus specie was virtually multiplied by making bank bills do duty for it. The value of these bills being rigorously sustained, and their redemption in the best coin assured on demand, this convenient form of currency naturally became popular. As a result, the government found itself in possession of a large mass of funds which it could use for itself without paying interest. It would be very difficult to state the amount deposited in this central commercial bank. It necessarily varied. Towards the middle of the eighteenth century there were 5,000,000 ducats sterling; at the end of that century 14,000,000 or 15,000,000.[g]