Bills of Exchange and Units of Account

If a merchant ships goods abroad and wants a swift payment then a problem emerges. If they were to receive direct payment from the importer they would have to wait a long time to receive their payment, or even worse the payment could get lost in transport. Bills of exchange were a helpful tool for merchants in this case. The merchant could simply write a bill with amount owed and who owes the amount, and then go to the exchange bank and redeem the bill with amount owed for a local or preferred currency. However the amount specified on the bill was not local currency but a special unit of account.

In Western Europe during the 16th century the unit of account in exchange banking was called the ecu de marc (gold marc). This unit would be used for all bills of exchange regardless of country, and was then redeemed in local or preferred currencies. The exchange rate of the marc would depend on what was announced at the international exchange fairs. The fair would take place in the dominant financial center of the time. At the time of this exchange, the financial center was Lyons (France). Lyons could dicate the price of the marc in any currency being used in the network which covered much of Western Europe. At the time of this exchange, one marc was worth 64 ecus, another coin which would have been an ideal choice for a merchant in Florence.

Here we have three people; Me, a merchant from Florence, You, an exchange banker in Florence, and Salviati, a merchant from Lyons. In Davanzati's example I (me) ship 1 Marcs worth of goods to Salviati and and then sell my Bill to You for 64 ecus.

Assignment: Get Me to ship 1 marcs worth of goods to Salviati and receive payment from You. Click refresh to reset the board

me: Florence

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you: Florence

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Salviati: Lyons

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me: Florence