• Unit 3: The History of Money Markets

    This unit examines the origins and evolution of central banking in Europe until the 19th century. This unit claims that the birth of the money market was in 16th century Antwerp, where practices such as discounting and note issuance developed. The Bank of Amsterdam and Bank of England defined central banking. This unit explains how each central bank formed and operated within a layered money system. The Bank of Amsterdam's origins and its crucial innovations are also explained. It also covers the international gold standard and the central bank's role as "lender of last resort". The three-layered monetary system in England during the 19th century is important to understand since the monetary hierarchy increased in complexity during the 20th century.

    Completing this unit should take you approximately 2 hours.

    • Upon successful completion of this unit, you will be able to:

      • describe the monetary advance in Antwerp in the 16th century;
      • explain the reasons for the creation of the Bank of Amsterdam, its innovations, and privileged lending;
      • outline the founding of the Bank of England and identify key differences between BoE and BoA;
      • describe the origins of the international gold standard and how it functioned;
      • summarize the three-layer monetary system in England during the 19th century; and
      • explain the origins of the "lender of last resort" function of central banking.

    • 3.1: Time Value of Money

      This subunit discusses the history of Antwerp's money market during the 16th century. It examines the time value of money, which is essential for understanding discounting and note issuance. It identifies interest rate arbitrage as a foundational force for developing a monetary system.

    • 3.2: Bank of Amsterdam

      This subunit explains the founding of the Bank of Amsterdam in light of the Dutch East India Company. It introduces instant settlement and open market operations, privileged lending, and concepts to remember for later units that discuss the Federal Reserve.

      • Bank of Amsterdam Page

        Read this page about the founding of the Bank of Amsterdam. Take note of the concept of privileged lending.

    • 3.3: Bank of England

      This subunit explains the founding of the Bank of England. During the 18th and 19th centuries, a three-layered monetary system developed in England that became the global model. This section covers the international gold standard and its evolution, and explains it as a layered money phenomenon. This subunit also covers monetary elasticity, financial crises, and the origins of central banks' function as "lender of last resort".

      • Bank of England Page

        Read this section about the Bank of England and the three-layered monetary system England developed.

    • Unit 3 Review and Assessment

      • Unit 3 Review Page

        This video walks through the major topics we covered in Unit 3. As you watch, consider the concept of the time value of money and why that is important.

      • Unit 3 Assessment Quiz
        Receive a grade

        Take this assessment to see how well you understood this unit.

        • This assessment does not count towards your grade. It is just for practice!
        • You will see the correct answers when you submit your answers. Use this to help you study for the final exam!
        • You can take this assessment as many times as you want, whenever you want.