<P> The use of money predates history . Government control of money is documented in the ancient Egyptian economy (2750 - 2150 BC). The Egyptians measured the value of goods with a central unit called shat . As many other currencies, the shat was linked to gold . The value of a shat in terms of goods was defined by government administrations . Other cultures in Asia Minor later materialised their currencies in the form of gold and silver coins . </P> <P> In the medieval and the early modern period a network of professional banks was established in Southern and Central Europe . The institutes built a new tier in the financial economy . The monetary system was still controlled by government institutions, mainly through the coinage prerogative . Banks, however, could use book money to create deposits for their customers . Thus, they had the possibility to issue, lend and transfer money autonomously without direct governmental control . </P> <P> In order to consolidate the monetary system, a network of public exchange banks was established at the beginning of the 17th century in main European trade centres . The Amsterdam Wisselbank was founded as a first institute in 1609 . Further exchange banks were located in Hamburg, Venice and Nuremberg . The institutes offered a public infrastructure for cashless international payments . They aimed to increase the efficiency of international trade and to safeguard monetary stability . The exchange banks thus fulfilled comparable functions to modern central banks . The institutes even issued their own (book) currency, called Mark Banco . </P> <P> In the early modern period, the Dutch were pioneering financial innovators who developed many advanced techniques and helped lay the foundations of modern financial system . The Bank of Amsterdam (Amsterdam Wisselbank), established in the Dutch Republic in 1609, is often considered to be a forerunner to modern central banks . The Wisselbank's innovations helped lay the foundations for the birth and development of the central banking system that now plays a vital role in the world's economy . Along with a number of subsidiary local banks, it performed many functions of a central banking system . It occupied a central position in the financial world of its day, providing an effective, efficient and trusted system for national and international payments, and introduced the first ever international reserve currency, the bank guilder . Lucien Gillard (2004) calls it the European guilder (le florin européen), and Adam Smith devotes several pages to explaining how the bank guilder works (Smith 1776: 446 - 455). The model of the Wisselbank as a state bank was adapted throughout Europe, including the Bank of Sweden (1668) and the Bank of England (1694). </P>

Explain two ways in which a central bank differs from a commercial bank