We explained last week that beginning with the Crusades, Europeans rediscovered spices, silks, and other commodities which were uncommon in Europe. This development created a fresh desire for trade, and trade expanded in the second half of the Middle Ages.
Newly forming European states, through voyages of discovery, were looking for different trade routes in the 15th and 16th centuries, which permitted the European powers to build huge, new international trade networks.
These new found international trade networks laid the foundations of the modern world, especially the world of modern finance in the middle ages. In fact, a number of financial innovations developed in response to the logistics of financing crusades, including foreign exchange.
The earliest known foreign exchange contract occurred in 1156, in Genoa. Two brothers borrowed 115 Genoese pounds and agreed to reimburse the bank’s agents in Constantinople the sum of 460 bezants one month after their arrival in that city.
In the following century the use of such contracts grew rapidly, particularly since profits from time differences were seen as not infringing canon laws against usury.
In 1162, King Henry the II levied a tax to support the crusades — the first of a series of taxes levied by Henry over the years with the same objective. The Templars and Hospitallers acted as Henry’s bankers in the Holy Land.
The Templars’ wide flung, large land holdings across Europe also emerged in the 1100-1300 time frame as the beginning of Europe-wide banking, as their practice was to take in local currency, for which a demand note would be given that would be good at any of their castles across Europe, allowing movement of money without the usual risk of robbery while traveling.
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