probably imagine how ancient retailers were quite happy with this invention. yet, without an assigned and trusted issuer, they still required the coins to have intrinsic value, i. e., to be made of precious metals. there were other problems with coins. firstly, they were often debased by mixing the gold or silver with less valuable metals. also ‘ clipping ’, that is, shaving off part of the material, was fairly widespread. this led to a phenomenon that many years later became known as gresham ’ s law. it says that in commerce ‘ bad coins ’ drive out ‘ good coins ’ as the latter are kept for saving purposes. mistrust in the coin system, or even its entire breakdown, was often the unhappy consequence. another issue was the plethora of mints that continued to grow in number as technology spread. fast forward, and at the mid - medieval period it had become fashionable for every european kingdom and principality to issue its own coins. with production costs lower than the coins ’ value, this was a useful source of income to finance the frequent wars at the time. but with multiple coins drifting around and uncertainty about their true value, it was essentially a mess. however, where there is chaos innovative minds see opportunities. during the 12th century, in the northern part of italy, a new type of institution emerged. these specialised in exchanging foreign coins for local ones, not unlike present day foreign exchange dealers. this reduced the problem with the many coins causing much confusion. even more advanced, some of the new institutions started to swap coins for bills of exchange that could be used in local trade. 3 the medieval coin - exchange providers brought banking to europe, it is often said. initially, they only handled deposits, as charging interest was viewed as usury by the powerful church. however, with italy the epicentre of european trade, you could still run a proper business facilitating transactions only. later, the house of medici and its peers took banking as well as bookkeeping to the next level. around the same time, the famous knights templar were also chipping in with innovations in payments and banking. they provided services for long - distance payments, one of them a system akin to international cheques. europeans involved in the crusades were faced with a long and dangerous journey to the holy land, where carrying valuables was risky. instead, the knight templars offered their clients to deposit their belongings at home against a letter. this - the

from time to time, this has even led to new types of financial business that we recognise today. lately, a trend has been the emergence of new suppliers of payment services outside of the bank domain, in europe facilitated by legislation. their heterogeneity is large, but so is the potential of some of them. private and public sector do what they do best my third takeaway regards the role of the private and public sectors. while their roles may have changed over time, they have invariably explored their comparative advantages. throughout history, the private sector has showcased that it is an 8 excellent innovator and understands consumer needs. where there is a problem, it often provides a solution. the primary role of the public sector revolves around trust, universal services to all citizens, and security. one fundamental role of central banks today is to facilitate payments between banks. while the predecessor to our current clearing and settlement system may have started life in a london tavern, it later moved into the central banks. the main reason for this is to help banks settle payments using accounts at the central bank, i. e. in central bank money, thus abolishing the credit risks that could arise if they instead used commercial bank money. central bank money is generally regarded as the safest settlement asset that could be used. while the private sector innovates, the public sector needs to be ready to ‘ step in ’ and correct market failure, provide coordination, guidance, and exercise its comparative advantages from time to time. in my historical walkthrough, i gave you some cases of this : the foundation of the riksbank on the ruins of stockholms banco ; postgirot, a rare example of the private sector failing to accommodate consumer needs ; and amsterdamsche wisselbank was an example of the government trying to solve the problem of not having uniformity of money. network and scale effects as important as ever my fourth and final lesson relates to network and scale effects, and the barriers to entry they pose. providers of new payments solutions need to invest money for development, setting up the infrastructure and marketing. hence, there is a high fixed cost associated with market entry. furthermore, to have a successful payments method, you need to have both payers and payees on board, and you need to reach a critical mass to cover your costs. we say that payments are a scale business. however, reaching a critical mass can be difficult since the value of the payment method is determined by the number