Final answer:
Goldsmiths are considered the forerunners of modern banks because they stored gold and issued receipts which acted as commodity-backed currency. This method is a precursor to the modern banking system that uses paper currency to represent the value of actual commodities like gold or silver.
Step-by-step explanation:
Goldsmiths are considered to be the forerunners of modern banks because they stored gold and issued receipts. This system of issuing receipts for gold stored with them was a foundational principle for the development of modern banking. Their receipts eventually began to be used as a form of commodity-backed currency, allowing people to trade these receipts instead of the actual gold.
This was a significant shift away from cumbersome gold or silver coins (i.e., specie) to a more convenient paper representation of money. These receipts, akin to modern banknotes, could be exchanged for a certain amount of gold or silver at the goldsmith's establishment, which parallels the practice evidenced by "Silver Certificates" in the United States up until 1957.
The banking system based on commodity-backed currencies became strained during times when confidence in the paper currency wavered and people demanded to exchange their banknotes for the actual precious metals. This situation was highlighted during the periods of banking crises, such as the Panic of 1819, indicating the delicate balance upon which early banking systems were based.