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The development of money, minting, and banking was one of the most important features of the medieval economy. From the simple barter and gift economies of the early Middle Ages, the commercial revolution of the High Middle Ages produced a sophisticated system of coinage, credit, and banking that laid the foundations for the later development of European capitalism. The Italian banking houses of Florence, Siena, and Lombardy developed the bills of exchange and other financial instruments that were the ancestors of the modern banking system, and the Templars and Hospitallers provided the financial services that made the Crusades possible. This cluster explores the money, minting, and banking of the medieval period.
Peter Spufford, “Money and Its Use in Medieval Europe” (1988), is the standard English-language treatment. John H. Munro’s work on the medieval origins of the financial revolution is the indispensable modern complement. The page below uses both, and the surviving coins, mint records, and bankers’ ledgers as primary material. The English reform of 1279 (the “Edwardian” recoinage) and the Italian gold coinages of 1252 (the florin of Florence, the genovino of Genoa) are the two anchor points.
Medieval Coinage
The coinage of the High Middle Ages was based on the silver penny, which was the principal unit of currency in most of Europe. The penny was derived from the Roman denarius and from the Carolingian denarius, and it remained the standard silver coin throughout the medieval period. The pound (originally a pound of silver, the libra or livre) was the unit of account, and the shilling (originally a unit of twelve pence, the solidus or sou) was a derived unit. The mark (a unit of two-thirds of a pound, or 160 pence) was used as a unit of account in some regions, particularly in the German lands.
The coinage of the High Middle Ages was largely in the hands of kings and lords, who exercised the right of coinage as a royal prerogative. The royal mints produced the coins that circulated in the realm, and the king derived a profit from the seigniorage — the difference between the face value of the coins and the value of the metal contained in them. The coinage was often of variable quality, and the kings of Europe were constantly tempted to debase the coinage — to reduce the silver content of the coins — in order to finance their expenditures. The debasement of the coinage was a major source of inflation and economic instability in the medieval period.
The coinage of the medieval period varied considerably from region to region. The English silver penny was one of the most stable coinages of the period, and it remained the standard of the English currency until the modern era. The French denier was a major currency in France and in the Mediterranean, and the Italian denaro was a major currency in the Italian cities. The gold coinage of the Byzantine Empire — the solidus (or bezant) — remained a major international currency throughout the medieval period, and it circulated across Europe and the Mediterranean.
The gold coinage of the Italian cities — the florin of Florence (first struck in 1252), the ducat of Venice (first struck in 1284), and the genovino of Genoa (first struck in 1252) — became major international currencies in the late medieval period, and they circulated across Europe and the Mediterranean. The gold florin of Florence was particularly important, and it remained a major international currency until the sixteenth century.
Bills of Exchange and Credit
The bill of exchange was one of the most important financial innovations of the medieval period. The bill of exchange was a contract between a creditor and a debtor whereby the debtor agreed to pay a certain sum of money in a certain place at a certain time in return for a corresponding sum received in another place at the time of the contract. The bill of exchange allowed merchants to transfer money across distances without the risks of carrying cash, and it also allowed merchants to obtain credit for their operations.
The bill of exchange was developed by the Italian merchants in the thirteenth century, probably in Genoa, Pisa, or Florence. The bill of exchange was based on the existence of a net of correspondents in the major commercial centers of Europe, and it required a sophisticated system of accounting and trust. The merchant who drew the bill promised to pay a certain sum in a certain place at a certain time, and the merchant who accepted the bill paid the corresponding sum in another place at the time of the contract. The bill of exchange also included an interest component, disguised as an exchange rate difference between the two currencies.
The bill of exchange had a number of advantages over the carrying of cash. The bill of exchange avoided the risks of robbery and loss associated with the transportation of cash across long distances. The bill of exchange also allowed merchants to obtain credit for their operations, since the bill could be discounted or sold to a third party before it matured. The bill of exchange also facilitated the integration of European money markets, since the exchange rates between different currencies reflected the supply and demand of money in different markets.
The Italian merchants also developed other sophisticated financial instruments in the medieval period, including letters of credit, insurance contracts, partnership agreements, and deposit banking. The letters of credit allowed merchants to obtain funds in distant places without the need to carry cash. The insurance contracts protected merchants against the risks of loss at sea, and they were the ancestors of the modern marine insurance industry. The partnership agreements allowed merchants to pool their resources and share their risks, and they were the ancestors of the modern corporation. The deposit banking allowed merchants to safeguard their funds and to obtain credit for their operations.
Italian Banking Houses
The Italian banking houses of Florence, Siena, and Lombardy were the major financial institutions of the late medieval period. The Florentine banks — the Bardi, the Peruzzi, the Acciaiuoli, the Strozzi, and later the Medici — were the major financial institutions of the fourteenth and fifteenth centuries, and they provided loans, deposit banking, and foreign exchange services to kings, popes, and merchants across Europe. The Sienese banks — the Buonsignori, the Tolomei, and others — were also major financial institutions in the thirteenth and fourteenth centuries, and the Monte dei Paschi of Siena, founded in 1472, remains the oldest surviving bank in the world.
The Italian banking houses played a major role in the finances of the papacy and the great secular rulers. The papacy maintained accounts with the Florentine banks, and the popes received loans from the banks to finance their expenditures. The kings of England, France, and Spain also maintained accounts with the Florentine banks, and they received loans from the banks to finance their wars and administrations. The loans to kings and popes were a major source of profit for the banks, but they were also a major source of risk, since the kings and popes often defaulted on their debts.
The decline of the Italian banking houses began in the mid-fourteenth century. The bank failures of the 1340s — particularly the collapse of the Bardi and the Peruzzi in 1345–1346 — were a major financial crisis of the late medieval period, and they led to a long period of instability in European finance. The English default on its debts to the Florentine banks in 1345, following the disastrous Battle of Crécy in 1346, was a major factor in the crisis, and it contributed to the loss of confidence in the Florentine banking system. The banking houses of Florence never fully recovered from the crisis, and the center of European banking gradually shifted to the banks of Genoa, Lucca, and Milan in the fifteenth century.
The Templars as Bankers
The Knights Templar were one of the earliest and most famous banking institutions of the medieval world. The Templars developed a system of international banking that allowed pilgrims to deposit funds in a Templar house in one country and to withdraw the funds in a Templar house in another country, using a letter of credit that identified the depositor and the amount of the deposit. The system allowed pilgrims to travel without the risks of carrying cash, and it also allowed the Templars to earn interest on the deposits while they were in transit.
The Templar banking system was widely used by kings and popes as well as by pilgrims. The English kings deposited funds with the Templars in London and withdrew them in Paris; the French kings deposited funds in Paris and withdrew them in Acre; the popes deposited funds in Rome and withdrew them in London or Paris. The Templar banking system was one of the most sophisticated financial systems of the medieval world, and it was a major factor in the success of the Crusades.
The Templar banking system collapsed with the suppression of the Templars in 1312, and the Templar assets were transferred to the Knights Hospitaller. The Hospitallers did not develop a comparable banking system, and the center of European banking gradually shifted to the Italian cities in the fourteenth and fifteenth centuries.
The Rise of Modern Banking
The medieval banking system laid the foundations for the modern banking system. The bills of exchange developed in the Italian cities became the ancestors of the modern promissory note and bank draft. The deposit banking developed in the Italian cities became the ancestor of the modern commercial bank. The insurance contracts developed in the Italian cities became the ancestor of the modern insurance industry. The partnership agreements developed in the Italian cities became the ancestor of the modern corporation.
The great banking houses of the late medieval period — the Medici of Florence, the Fugger of Augsburg, the Welser of Augsburg, and the Hochstetter of Augsburg — were the major financial institutions of the fifteenth and early sixteenth centuries, and they played a major role in the finances of the Habsburg Empire and the papacy. The banking houses of the German cities of Augsburg and Nuremberg became the major financial institutions of the early modern period, and they played a major role in the financing of the European expansion overseas.
Sources
Principal sources used in this article:
- Peter Spufford, Money and Its Use in Medieval Europe (Cambridge, 1988).
Further reading:
- John H. Munro, “The Medieval Origins of the Financial Revolution,” International Journal of Accounting (2003).
For a recent single-volume synthesis with full scholarly apparatus, see the relevant chapter of Barbara H. Rosenwein, A Short History of the Middle Ages (University of Toronto Press, 2014).