Read this page about the pros and cons of bimetallism and the differences between final and deferred settlements.
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.
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
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 night-
mare 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.
Source: Nik Bhatia: Layered Money
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