The Florin
Read this page about the pros and cons of bimetallism and the differences between final and deferred settlements.
The Florin
The northern Italian cities of Florence, Venice, Genoa, and Pisa established themselves as city-republics after breaking free from their feudal overlords during the eleventh century, and their newfound independence was later followed by the coinage of their own money. In the year 1252, when the Florentine mint struck the first Fiorino d'Oro, or gold florin, nothing novel had necessarily been accomplished. It was merely another coin. However, as decades and centuries passed without a change in the coin's gold weight and purity, the florin earned a reputation that eventually drove all those surrounding it into its denomination.
Historically, precious metal coins were durable, divisible, and portable, but with governments constantly reducing the purity of their coins, no coin existed with multigenerational credibility. The Florentine mint changed that. The florin maintained an unchanged weight and purity, about 3.5 grams of pure gold, spanning an astounding four centuries. By the time the florin denomination was one hundred years old, it had evolved into the international monetary standard for pan-European finance. High salaries, jewelry, real estate, and capital investment were all priced in florin.
It also found popularity amongst working people as a way to literally carry their entire life's savings in their pocket. Florins proved to be exemplary collateral and could easily be pawned to borrow silver coins for smaller transactions. The florin as a unit of account disseminated throughout Europe and beyond as the world's most trusted and stable monetary denomination.
The extraordinary stability of the florin alone didn't drive monetary innovation during the Renaissance, but its multi-century popularity coincided with simultaneous advancements in mathematics, accounting, and banking that resulted in a prodigious transformation of the human experience with money. Before detailing these progressions, we first have to understand the flaws in coin-money they addressed.
Coin Multiplicity
Coinage alone did not make a monetary system. Coin-money presented two enormous problems for the global economy, which in that period consisted of cities in Europe, northern Africa, and the Middle East connected by the Mediterranean Sea. There were simply too many different currencies, and this problem of coin multiplicity severely hampered money velocity.
Money velocity measures how quickly money changes hands. It's the speed at which money moves from one owner to the next, and only with sufficient speed can money help human beings trade to their fullest potential. Gold and silver coins accelerated money velocity relative to more primitive ages when precious metal bars and nuggets of non-standardized weights were used as mediums of exchange. But a world of coin multiplicity where thousands of competing coins were used meant that an equivalency conversion had to occur alongside practically every single transaction between people of different geographies. This presented major challenges to unlocking the next levels of money velocity and international trade, because standards for weights and purities varied wildly across the world.
Money changers specialized in this requisite conversion and became integral to all trade. They were tasked with trafficking between hundreds or even thousands of different coins in order to facilitate every type of international exchange. A lack of coin uniformity throughout the world allowed money changers to profit any instance a merchant or customer needed conversion from one currency to another. This profession still exists today in the form of foreign exchange brokers, or those that convert Mexican pesos to Brazilian real, for example.
Compounding the coin multiplicity problem was the issue of bimetallism, which allows for two separate metals to be used as money. Silver is a more abundant metal in the Earth's crust than gold is and has historically served as the money of common people and daily transactions. Gold, on the contrary, is the more desired precious metal and sought- after form of wealth, but it didn't suffice for daily use: a single florin was worth more than a week of labor from the average worker. The gold and silver dichotomy complicated the formation of a unified monetary system until the end of the nineteenth century.
Risks of Physical Transfer
The second major challenge of a coin-money system was the risk associated with the physical transfer of coins. Sending coins across land and sea was perilous and a logistical nightmare during the medieval era. Shipwrecks were often the unfriendly collateral damage of trying to settle international debts. Part of the reason precious metals were deemed precious was their indestructibility, so it would seem apt that an entire industry of shipwreck hunting exists today to find gold and silver coins that were lost during this era.
The solution to these problems was the idea of deferred settlement. As an alternative to the physical transfer of metal, deferred settlement takes place when one party unambiguously promises to pay another at a later time. At that time, final settlement occurs, and the owed party receives ultimate payment, historically gold and silver. These promises, or credits, were made as a way for merchants to reduce the risk of international coin transfer. These types of deferred settlement arrangements existed long before the thirteenth century but didn't have any systemic qualities. Financial promises lacked uniformity, and a formal system of credits didn't yet exist. A stable florin was a monumental building block, but forming a monetary system was incumbent on more than just an unwaveringly consistent coin purity. It demanded a culture of promises.