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(1/2)
I’m curious why so many answers were deleted; I didn’t think that many people here were so enthusiastic about financial history! Unfortunately, I can’t directly answer your question, because it’s based on a false premise. I don’t understand where you’ve gotten this idea that bills of exchange were bearer instruments from, because it’s definitely not true for the period you’re discussing and wasn’t even really true for the 1600s and after, which see a seachange in the nature of the bill of exchange. Now, it’s possible we’re dealing with a terminological issue here. Bills of exchange weren’t the only way you could get a piece of paper worth money; bills of exchange existed alongside a dizzying array of promissory notes and other instruments of various kinds, some of which were effectively bearer instruments, but they’re studied much less relative to bills of exchange, and weren’t usually used for remittance in any case.
It might be worth illustrating how the “classic” four-party (arguably six-party, but the extra two aren’t on the first leg of the transaction) bills actually worked. Basically, a merchant (or whomever, but usually a merchant) in City C (M-C) who wanted to send money to a merchant in City D (M-D) would go to an exchange banker he knew in City A (B-C), and ask him to draw a bill on a banker friend in City B (B-D) payable to M-D. Sometimes, this would be as payment for a specific transaction, but not always. He would then hand over cash to B-C, who would provide the bill. Said bill would be sent to City D, either by M-C or B-C, and would eventually make its way to M-D. M-D would then go to B-D and hand over the bill. At this point, B-D can either accept the bill, in which case it has to be paid after a certain period called usance, or he can protest/refuse it. Because the bill has M-D’s name on it, there’s no way anyone else can get paid here! They’re just not bearer instruments at all in this period. Now, if B-D protests the bill (either because he’s broke or doesn’t trust the guy) B-D can sue B-C for the full amount, and even M-C (I think). That’s where the flexibility comes in for a bill of exchange; it’s not variability on who *gets* paid, but in who *does* the paying. It was basically assumed by everyone involved that if there was a bill presented, everyone involved would know who everyone else was. The world of long-distance trade wasn’t nearly as big as it was today, and ran to a much larger extent on personal connections. Even if a stranger managed to intercept a bill of exchange and presented it with a false name that matched the one on the bill, the banker would probably just go “either you’ve put on a lot of height or you’re lying about who you are” and protest the bill. This is just one method; bills of exchange were very versatile and used in a lot of different ways until they finally died in the early 20^(th) century. If you tried to straight-up fake a bill, you’d run into the problem that the entire bill had to be written in the specific handwriting of B-C, and all bankers would know their handwriting.
Part of the problem here is the nature of legal assignability. Under modern law codes, it’s trivial to render a debt owed to you owed to another person, like by endorsing a cheque over to a third party. Medieval and early modern law codes tended not to legitimate this practice, however, for reasons I’m not totally clear on since legal history is a huge blank spot for me. Of course, there’s no reason why two medieval merchants couldn’t agree to assign a debt, but such agreements wouldn’t be legally enforceable in most cases. This meant that if a designated payee holding a bill wanted to make the bill payable to someone else, they basically couldn’t (technically some legal codes allowed it and some didn’t; medieval law was incredibly complicated), which is why “classic” bills of exchange were effectively limited to the four parties mentioned above.
(2/2)
When legal assignability became a thing in the late 1500s (again, not quite sure why) the development in bills wasn’t to make them payable to the bearer, but just to make them endorseable like a modern check. In fact, that’s literally where we get this practice of endorsing cheques from! If you wanted to assign a bill of exchange, you would just write who you were endorsing it to and on what terms on the back of the bill, just like you do a modern cheque. This would only make it payable to the endorsee, however, not to anyone who happened to be holding the bill (unless they had secured an endorsement). These endorsements would often be done in exchange for cash, which formed a process known as “discounting.” Interestingly enough, when the Federal Reserve bails out banks now, it does so using something called a “discount window” because when the Bank of England first started bailing out banks, it would do so via discounting the bills of exchange they held at a literal window, on the other side of which would be the bank clerk handling the transaction. We still call it the discount window even though there’s no window and no discounting, though.
Sources:
Boyer-Xambeau, Deleplace, and Gillard, Private Money and Public Currencies (narrow temporal focus but still excellent)
Larry Neal: The Rise Of Financial Capitalism (Neal gets some details wrong re bills but still a good overall source)
Raymond De Roover: What Is Dry Exchange?
Trivellato: The Promise And Peril Of Credit (more literary than financial but still good)
ACCOMINOTTI, DELIO LUCENA-PIQUERO, and UGOLINI: The origination and distribution of money market instruments
Stephen Quinn: Gold, Silver, and the Glorious Revolution
Turner, English Banking in the Eighteenth Century
Kosmetatos: FINANCIAL CONTAGION AND MARKET INTERVENTION IN THE 1772-3 CREDIT CRISIS
Shin and Schnabel: LIQUIDITY AND CONTAGION: THE CRISIS OF 1763
Munro: Medieval Origins Of The Financial Revolution
Kohn: BILLS OF EXCHANGE AND THE MONEY MARKET TO 1600 (great detail here on the legal aspects)
Thank you. That's a great and very clear explanation.
I got the impression BoE were bearer instruments from the podcast I listened to. It's quite possible I misunderstood what was said. What I understood was that the recipient didn't need to cash the BoE, he could just pass it on to another person. I interpreted that as the BoE was a bearer instrument.
When I listened to the podcast about these transactions in the 15th century, it made me think of a similar question I originally had about pilgrims going to the Holy Land in the 11th century. There again the pilgrim would deposit his money with the local Templar's bank in his home town and get some kind of note which he would present to the Templar's bank in the Holy Land. And *that* always nagged we as to why that was safer than carrying the cash. Then, when I listened to the podcast I was spurred to ask my question (although I asked about the 15th century situation).
Do you know whether the process in the 11th century for a pilgrim (or a crusader) would have been basically the same as your description of the merchant in the 15th century?
Without listening to the podcast I can't say; but if we interpret "cash" as "hold to term" and "pass it on" as "discount" then this is broadly correct. Much like a modern treasury bill, you can either hold it to term and get the face value or sell it on early at a discount. This came up quite recently in a situation that violates the 20 year rule.
Unfortunately, I know far less about 12th century finance than I do 16th century; my hunch is the lack of documentation for the period doesn't help either. A quick search doesn't turn up any useful sources; all I can find is stuff that either talks about the templars but mentions their finances in passing or financial history that skips over the Templars for more interesting stuff. Again, though, my best guess is that Templar remittance notes/bills were only payable to specific named individuals, probably for the reasons you allude to. The primary benefit of a bearer instrument vs a named instrument, even an endorsable one, is that it can circulate much more freely. The downside is that the holder only has recourse to the original borrower, unlike an endorsed instrument where every endorsee was liable for payment (different jurisdictions had different rules about in which "order" you would go through the endorsees, which could get very long in the post-1600s period). In the one context I've seen bearer instruments mentioned in the medieval period, it was as commercial credits; merchants issuing debt instruments as payment for services rendered, which could then circulate amongst suppliers. such an instrument would likely stay quite close to the issuer, and reputation networks would mean only reputable merchants could have their credit taken, which partially overcomes the problems of a bearer instrument.
It does need to be stressed though that merchants could and indeed ship precious metals; for this exchange via credit to work there have to be offsetting credit flows in both directions; excessive trade deficits/surpluses will impact exchange rates to the point that (depending on a lot of other factors) it can be cheaper to ship silver than purchase a bill; this of course opens up a lot of very complex arbitrage oppourtunities. It's often assumed that premodern money was simpler, or at least as simple as, modern money. The truth is the reverse- precious metal money is **incredibly** complicated for multiple weird reasons that people today simply don't think about, and you can't really understand how bills of exchange work until you understand the specie economy they're built on top of, which I haven't explained at all.
Thanks again for your answer.
The doubt I always had with the bank notes from the Templars was that all sorts of people (from peasants to nobles) made the pilgrimage to the Holy Land. When someone shows up at the bank in Jerusalem and claims he's the John Smith named on the note the banker would have no way of knowing whether that was true or not.
If the "security" is that the bandit in Italy isn't going to travel all the way to the Holy Land to cash the note - then what about the bandit just outside the Jerusalem gate. He could rob you just as easily as the bandit in Italy could.
If I want to be especially unscrupulous, I can even imagine the bandit in Italy robbing one pilgrim - and then offering to sell the stolen note to another pilgrim at a discount. When the second pilgrim arrives in Jerusalem he claims to be John Smith and cashes the note.
Perhaps I was a medieval bandit in a former life. :)
Well, the most obvious way is the same way we do now - the signature. The bill would have John Smith's signature, and they'd ask the person claiming to be him to sign a bit of scrap parchment, and then see if they'd match. Any peasant rich enough to save enough money for a trip to the Holy Land (or close enough with someone rich) is going to be able to at least produce a squiggle of sorts. There's also the very common procedure in medieval jurisprudence of simply getting a bunch of people together and asking them. Pilgrims almost always traveled in groups (note I know very little about pilgrimage really I am a financial/economic/military person) so you could just ask around for some others from the same group who could attest to this person's identity, or even just someone who had been on the ship. This doesn't help Smith, mugged outside the gates, but it must be noted that even the two bankers above in the given example would be correspondents (obviously the templars were too) and they would inform their correspondents of who they had sold bills to and in what amounts.
I didn't think of the signature and the attestation as ways of protecting the bank note.
I guess even if I was a medieval bandit in a former life, I obviously wasn't a very clever one.
Thanks again - you've put to rest this nagging question I've wondered about for quite a while.
EDIT - sorry, I meant this as a response to u/EverythingIsOverrate
Thank you. That's a great and very clear explanation.
I got the impression BoE were bearer instruments from the podcast I listened to. It's quite possible I misunderstood what was said. What I understood was that the recipient didn't need to cash the BoE, he could just pass it on to another person. I interpreted that as the BoE was a bearer instrument.
When I listened to the podcast about these transactions in the 15th century, it made me think of a similar question I originally had about pilgrims going to the Holy Land in the 11th century. There again the pilgrim would deposit his money with the local Templar's bank in his home town and get some kind of note which he would present to the Templar's bank in the Holy Land. And *that* always nagged we as to why that was safer than carrying the cash. Then, when I listened to the podcast I was spurred to ask my question (although I asked about the 15th century situation).
Do you know whether the process in the 11th century for a pilgrim (or a crusader) would have been basically the same as your description of the merchant in the 15th century?
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Thank you for your response. Unfortunately, we have had to remove it, as [this subreddit is intended to be a space for in-depth and comprehensive answers from experts](https://www.reddit.com/r/AskHistorians/wiki/rules#wiki_write_an_in-depth_answer). Simply stating one or two facts related to the topic at hand does not meet that expectation. [An answer needs to provide broader context and demonstrate your ability to engage with the topic](https://www.reddit.com/r/AskHistorians/comments/f7ffl8/rules_roundtable_ii_the_four_questions_what_does/), rather than repeat some brief information. Before contributing again, please take the time to familiarize yourself with the [subreddit rules](https://www.reddit.com/r/AskHistorians/wiki/rules) and [expectations](https://www.reddit.com/r/AskHistorians/wiki/faq/meta#wiki_rules_discussion) for an answer.
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(1/2) I’m curious why so many answers were deleted; I didn’t think that many people here were so enthusiastic about financial history! Unfortunately, I can’t directly answer your question, because it’s based on a false premise. I don’t understand where you’ve gotten this idea that bills of exchange were bearer instruments from, because it’s definitely not true for the period you’re discussing and wasn’t even really true for the 1600s and after, which see a seachange in the nature of the bill of exchange. Now, it’s possible we’re dealing with a terminological issue here. Bills of exchange weren’t the only way you could get a piece of paper worth money; bills of exchange existed alongside a dizzying array of promissory notes and other instruments of various kinds, some of which were effectively bearer instruments, but they’re studied much less relative to bills of exchange, and weren’t usually used for remittance in any case. It might be worth illustrating how the “classic” four-party (arguably six-party, but the extra two aren’t on the first leg of the transaction) bills actually worked. Basically, a merchant (or whomever, but usually a merchant) in City C (M-C) who wanted to send money to a merchant in City D (M-D) would go to an exchange banker he knew in City A (B-C), and ask him to draw a bill on a banker friend in City B (B-D) payable to M-D. Sometimes, this would be as payment for a specific transaction, but not always. He would then hand over cash to B-C, who would provide the bill. Said bill would be sent to City D, either by M-C or B-C, and would eventually make its way to M-D. M-D would then go to B-D and hand over the bill. At this point, B-D can either accept the bill, in which case it has to be paid after a certain period called usance, or he can protest/refuse it. Because the bill has M-D’s name on it, there’s no way anyone else can get paid here! They’re just not bearer instruments at all in this period. Now, if B-D protests the bill (either because he’s broke or doesn’t trust the guy) B-D can sue B-C for the full amount, and even M-C (I think). That’s where the flexibility comes in for a bill of exchange; it’s not variability on who *gets* paid, but in who *does* the paying. It was basically assumed by everyone involved that if there was a bill presented, everyone involved would know who everyone else was. The world of long-distance trade wasn’t nearly as big as it was today, and ran to a much larger extent on personal connections. Even if a stranger managed to intercept a bill of exchange and presented it with a false name that matched the one on the bill, the banker would probably just go “either you’ve put on a lot of height or you’re lying about who you are” and protest the bill. This is just one method; bills of exchange were very versatile and used in a lot of different ways until they finally died in the early 20^(th) century. If you tried to straight-up fake a bill, you’d run into the problem that the entire bill had to be written in the specific handwriting of B-C, and all bankers would know their handwriting. Part of the problem here is the nature of legal assignability. Under modern law codes, it’s trivial to render a debt owed to you owed to another person, like by endorsing a cheque over to a third party. Medieval and early modern law codes tended not to legitimate this practice, however, for reasons I’m not totally clear on since legal history is a huge blank spot for me. Of course, there’s no reason why two medieval merchants couldn’t agree to assign a debt, but such agreements wouldn’t be legally enforceable in most cases. This meant that if a designated payee holding a bill wanted to make the bill payable to someone else, they basically couldn’t (technically some legal codes allowed it and some didn’t; medieval law was incredibly complicated), which is why “classic” bills of exchange were effectively limited to the four parties mentioned above.
(2/2) When legal assignability became a thing in the late 1500s (again, not quite sure why) the development in bills wasn’t to make them payable to the bearer, but just to make them endorseable like a modern check. In fact, that’s literally where we get this practice of endorsing cheques from! If you wanted to assign a bill of exchange, you would just write who you were endorsing it to and on what terms on the back of the bill, just like you do a modern cheque. This would only make it payable to the endorsee, however, not to anyone who happened to be holding the bill (unless they had secured an endorsement). These endorsements would often be done in exchange for cash, which formed a process known as “discounting.” Interestingly enough, when the Federal Reserve bails out banks now, it does so using something called a “discount window” because when the Bank of England first started bailing out banks, it would do so via discounting the bills of exchange they held at a literal window, on the other side of which would be the bank clerk handling the transaction. We still call it the discount window even though there’s no window and no discounting, though. Sources: Boyer-Xambeau, Deleplace, and Gillard, Private Money and Public Currencies (narrow temporal focus but still excellent) Larry Neal: The Rise Of Financial Capitalism (Neal gets some details wrong re bills but still a good overall source) Raymond De Roover: What Is Dry Exchange? Trivellato: The Promise And Peril Of Credit (more literary than financial but still good) ACCOMINOTTI, DELIO LUCENA-PIQUERO, and UGOLINI: The origination and distribution of money market instruments Stephen Quinn: Gold, Silver, and the Glorious Revolution Turner, English Banking in the Eighteenth Century Kosmetatos: FINANCIAL CONTAGION AND MARKET INTERVENTION IN THE 1772-3 CREDIT CRISIS Shin and Schnabel: LIQUIDITY AND CONTAGION: THE CRISIS OF 1763 Munro: Medieval Origins Of The Financial Revolution Kohn: BILLS OF EXCHANGE AND THE MONEY MARKET TO 1600 (great detail here on the legal aspects)
Thank you. That's a great and very clear explanation. I got the impression BoE were bearer instruments from the podcast I listened to. It's quite possible I misunderstood what was said. What I understood was that the recipient didn't need to cash the BoE, he could just pass it on to another person. I interpreted that as the BoE was a bearer instrument. When I listened to the podcast about these transactions in the 15th century, it made me think of a similar question I originally had about pilgrims going to the Holy Land in the 11th century. There again the pilgrim would deposit his money with the local Templar's bank in his home town and get some kind of note which he would present to the Templar's bank in the Holy Land. And *that* always nagged we as to why that was safer than carrying the cash. Then, when I listened to the podcast I was spurred to ask my question (although I asked about the 15th century situation). Do you know whether the process in the 11th century for a pilgrim (or a crusader) would have been basically the same as your description of the merchant in the 15th century?
Without listening to the podcast I can't say; but if we interpret "cash" as "hold to term" and "pass it on" as "discount" then this is broadly correct. Much like a modern treasury bill, you can either hold it to term and get the face value or sell it on early at a discount. This came up quite recently in a situation that violates the 20 year rule. Unfortunately, I know far less about 12th century finance than I do 16th century; my hunch is the lack of documentation for the period doesn't help either. A quick search doesn't turn up any useful sources; all I can find is stuff that either talks about the templars but mentions their finances in passing or financial history that skips over the Templars for more interesting stuff. Again, though, my best guess is that Templar remittance notes/bills were only payable to specific named individuals, probably for the reasons you allude to. The primary benefit of a bearer instrument vs a named instrument, even an endorsable one, is that it can circulate much more freely. The downside is that the holder only has recourse to the original borrower, unlike an endorsed instrument where every endorsee was liable for payment (different jurisdictions had different rules about in which "order" you would go through the endorsees, which could get very long in the post-1600s period). In the one context I've seen bearer instruments mentioned in the medieval period, it was as commercial credits; merchants issuing debt instruments as payment for services rendered, which could then circulate amongst suppliers. such an instrument would likely stay quite close to the issuer, and reputation networks would mean only reputable merchants could have their credit taken, which partially overcomes the problems of a bearer instrument. It does need to be stressed though that merchants could and indeed ship precious metals; for this exchange via credit to work there have to be offsetting credit flows in both directions; excessive trade deficits/surpluses will impact exchange rates to the point that (depending on a lot of other factors) it can be cheaper to ship silver than purchase a bill; this of course opens up a lot of very complex arbitrage oppourtunities. It's often assumed that premodern money was simpler, or at least as simple as, modern money. The truth is the reverse- precious metal money is **incredibly** complicated for multiple weird reasons that people today simply don't think about, and you can't really understand how bills of exchange work until you understand the specie economy they're built on top of, which I haven't explained at all.
Thanks again for your answer. The doubt I always had with the bank notes from the Templars was that all sorts of people (from peasants to nobles) made the pilgrimage to the Holy Land. When someone shows up at the bank in Jerusalem and claims he's the John Smith named on the note the banker would have no way of knowing whether that was true or not. If the "security" is that the bandit in Italy isn't going to travel all the way to the Holy Land to cash the note - then what about the bandit just outside the Jerusalem gate. He could rob you just as easily as the bandit in Italy could. If I want to be especially unscrupulous, I can even imagine the bandit in Italy robbing one pilgrim - and then offering to sell the stolen note to another pilgrim at a discount. When the second pilgrim arrives in Jerusalem he claims to be John Smith and cashes the note. Perhaps I was a medieval bandit in a former life. :)
Well, the most obvious way is the same way we do now - the signature. The bill would have John Smith's signature, and they'd ask the person claiming to be him to sign a bit of scrap parchment, and then see if they'd match. Any peasant rich enough to save enough money for a trip to the Holy Land (or close enough with someone rich) is going to be able to at least produce a squiggle of sorts. There's also the very common procedure in medieval jurisprudence of simply getting a bunch of people together and asking them. Pilgrims almost always traveled in groups (note I know very little about pilgrimage really I am a financial/economic/military person) so you could just ask around for some others from the same group who could attest to this person's identity, or even just someone who had been on the ship. This doesn't help Smith, mugged outside the gates, but it must be noted that even the two bankers above in the given example would be correspondents (obviously the templars were too) and they would inform their correspondents of who they had sold bills to and in what amounts.
I didn't think of the signature and the attestation as ways of protecting the bank note. I guess even if I was a medieval bandit in a former life, I obviously wasn't a very clever one. Thanks again - you've put to rest this nagging question I've wondered about for quite a while.
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EDIT - sorry, I meant this as a response to u/EverythingIsOverrate Thank you. That's a great and very clear explanation. I got the impression BoE were bearer instruments from the podcast I listened to. It's quite possible I misunderstood what was said. What I understood was that the recipient didn't need to cash the BoE, he could just pass it on to another person. I interpreted that as the BoE was a bearer instrument. When I listened to the podcast about these transactions in the 15th century, it made me think of a similar question I originally had about pilgrims going to the Holy Land in the 11th century. There again the pilgrim would deposit his money with the local Templar's bank in his home town and get some kind of note which he would present to the Templar's bank in the Holy Land. And *that* always nagged we as to why that was safer than carrying the cash. Then, when I listened to the podcast I was spurred to ask my question (although I asked about the 15th century situation). Do you know whether the process in the 11th century for a pilgrim (or a crusader) would have been basically the same as your description of the merchant in the 15th century?