The bill of exchange

Chapter XI The bill of exchange Exchange is a most convenient means and can be regarded as not only a basic, but also a principal element of all trading operations. Without it there would be no trading whatsoever. My primary purpose is to first review the exchange that is carried out by means of the bill of exchange from one location to another because there are also some other, less important methods of exchange, the mention of which is going to be made near the end of the chapter. T o support the claim that this bill is essential for trade and that without it trading is not possible, I will supply an argument which you, the traders, who have sufficient insight, are familiar with. T ruth be told, one needs to be a trader in order to judge another trader, as far as the issues we are discussing go. Thus, for the purposes of the discussion, let us assume that it is your plan to deliver Catalonian cloth to the Kingdom of Naples. What needs to be noted down? Y our response: “I will need one thousand gold coins in Barcelona.” As it is forbidden by law to take money outside the kingdom and since it would be a very risky and dangerous venture considering the distance and safety concerns regardless of the law, you need to find someone who has his money in Barcelona but needs it in Naples. Y ou will say to that man: “Here are one thousand gold coins, and you will give me the equivalent amount, e.g. 15 or 16 of your currency, for each gold coin when I arrive in Barcelona.” In case you enter such a deal and after you receive the offer, be sure to do

the calculation and let be this your reasoning: “ Assuming that the cloth in Barcelona is worth this amount of lire per bulk, which equals (in our currency) to this amount of minor dinars per bulk. If there are only so many dinars in a groschen, how many groschen will each bulk cost me?” In every calculation, be very mindful of the exchange rate, i.e. how much do you get for each groschen. The same applies if the situation is the other way around. I am stationed in Barcelona and I need to deliver the cloth to Naples. I need to consider how many groschen is a bulk of cloth worth in Naples. I receive 15 groschen and for 16 groschen one gets a certain amount of lire in Barcelona. T aking into account all the expenses, the cost of transport by boat and insurance, I will be able to compare the price per bulk in Naples with that in Barcelona. Therefore, it is now clear in what respect the bill of exchange is the basis and the essence of your deal, as well as that of the trader in Naples. This sophisticated practice is not that easy to properly apply in practice and thus one is required to be of sound mind and reasoning. If you intend to deliver the money to a designated location, you first need to enquire what the value of currency is there; otherwise you will lose. For example, October through November is the period when money is, as a rule, scarce in Barcelona due to an increased demand for the saffron that is sold there, and also in May when the demand for wool is very high. In V enice, money is scarce in July and August because this is the period when the galleys depart from the harbor, and it is scarce in December and January which is the time when the navas (merchant ships)

leave for Syria. The same is true for other places because each region and province has such periods. Keeping this in mind, you need to enter into correspondence to receive news on the current monetary status and exchange rate in the particular area of your interest. The most important is to learn the usances of the country where you intend to exchange the money. Y ou must entrust your money to somebody who will deliver it to the place you designated and the only question is that of the time it will take for the payment, as no extra charges are required to be paid on your part. For example, you are stationed in Barcelona and receive information from V alencia on the value of the bill of exchange in V enice, say 18 units of their currency. Y ou authorize the man in V alencia, since it would be 4% less profitable to do this in Barcelona, to issue the bill of exchange for 18 units of their currency per each gold coin, in accordance with “the usances” . This will be done. The next step on your part is to write a note to the man in V enice: “In case a man sends you money from V alencia, you will proceed according to my instructions.” The man in V alencia sends the money to V enice in proportion to the valid exchange rate of 18:1 and charges me 4% in Barcelona. When the due date on the bill of exchange from V alencia comes, I change it in Barcelona and send a requisition to V enice. The amount I gain is 17 solads and 6 (minor) dinars after investing 17. Additionally, I get a substantial percentage, which I send by courier from V alencia to submit to the man in V enice and indicate a 15 day period and usances that are valid in Barcelona. There are many similar practices by which one does not have to make huge investments to eventually gain a profit.

The man who wants to exchange the money should be well regarded in the area designated for the exchange and be familiar with all the usuances. For example, the deadline for settling the bill of exchange in Rome is upon submission. When you are aware of the deadlines, you know how much time it takes for the payment to arrive from one place to the other. Furthermore, exchange is of such crucial importance because the entire wholesale trade is sustained by this practice. It goes without saying that I do not consider either traders or trade in some obscure countries to be of any relevance for this discussion as opposed to excellent traders and bigger cities and regions. As some mediocre verse-mongers are not ranked as poets, and a similar merit is applied among philosophers and others, neither does the term “a trader” denote those inferior, the so called traders who deal in eel pelt, as the common expression goes. The same applies to market places. Exchange is so vital for trade that without it no trader could sustain his business. In addition, exchange proved to be very convenient for people who are moving from one place to another and are willing and obliged to exchange their money for the same amount in the currency of the country they arrived in. Such people are prelates, knights, students, soldiers and others of a similar kind for whom it is not possible to transfer money from the Kingdom of Sicily to Bruges in Flanders, so they give the money in one currency for the bill of exchange and will thus receive the same amount in another currency because money cannot be relocated otherwise. As exchange has proven to be such a valuable, beneficial

and important practice, not only for traders but also for gentle folk, clergy, knights and various passengers, we can easily conclude that it is a fundamental element in the field of trade and surely a very beneficial solution for those who first introduced it. W e have little doubt that the Florentines were the first who introduced it since they are known to have a strong tradition of trade, they are very orderly in their business operations and, finally, they knew what enormous benefits could be gained from such practice. Since it is indeed a practice of vital importance for the evolution of human kind, being so needed and advantageous, I am very much surprised by the numerous contemporary as well as old scholars who denounce exchange as a dishonest practice, and more so because it is evidently a sound help, genuine exchange and true agreement by which both interest rates and any major effort are avoided. This is the only kind of fair exchange which does not allow for the possibility of taking anything repeatedly on credit, losing your assets, or that you will lose or gain. Those who thus spoke against this obviously do not have a real understanding of this practice. I myself am a trader and I know my trade well, but I was nevertheless engrossed in this matter for two years before I finally managed to gain true insight and understanding; and I did have a considerable talent, willingness and desire to comprehend it. Admittedly, I am bold to claim that it is fairly impossible for someone to understand this issue by merely listening to others’ accounts, and hence one cannot pass any judgment on it, for the same reason a blind man cannot discuss colors.

Let us assume that Peter has one hundred gold coins in his possession in Paris, which he cannot obtain in V enice, where he presently is. He is acquainted with John who has one hundred gold coins at his disposal in V enice, and asks him: “If you could give me the one hundred gold coins you have, I would see that you get the same amount of my money in Paris.” John replies: “If you insist, I will do what you ask and agree to this exchange but under the condition that you give me ten percent.” It is said that, due to the benefits Peter enjoys and the trouble John is put through, taking the ten percent is a justified and legitimate demand. In my opinion, if it is carried out in an honorable manner and considering its estimation, exchange is by far a more permissible means. This is an issue for discussion at a particular point and in a particular chapter, so now is the time to mention other types of exchange, such as cases in which different currencies can be directly exchanged one for the other. In Avignon, various currencies are exchanged for francs, charges are paid in scudos, and forints serve as the merit in calculation. 132 1/3 Avignon scudos equals 100 francs because 1 forint 7 solads and 9 ½ dinars account for 1 franc. 1 gold coin in circulation in Avignon is worth 30 solads, whereas 10 royal scudos is equivalent to 34 of Avignon’s scudos. Each groschen equals 2 solads and 4 francs have the same value as 5 forints. Exchange can also be carried out so that money is given for money in addition to a certain percentage to cover the difference in the value of the two currencies. When exchanging the currency in Naples for that of Palermo, the latter is by a certain

percentage more valuable than the former. Also,if one wants to exchange V enetian gold coins in Naples, one has to pay so much of a percentage more or less. These terms vary so if you exchange V enetian in Geneva. As each region maintains its own customs, so are the terms under which exchange can be conducted distinct and various. Such amazing dexterity and discipline was needed to bring it to the level at which it is today. The bill of exchange can be protested, in which case if a party does not provide the payment and the bill is returned, its value is changed for better or worse, and the one who had requested it and then failed to pay must reimburse the adequate amount, because that money would have, after all, generated some profit. This is precisely the reason why some deplore this kind of agreement, so I cannot remain silent (even if we spoke of another matter) as to what St. Thomas has to say about this in 2.2, question 78: “The lender may stipulate with the borrower without sin for compensation for his loss in being deprived of anything that he ought to have: for this is not to sell the use of the money, but to avoid loss; and it may be that the receiver of the loan escapes a greater loss than the giver incurs: in that case the receiver of the loan compensates the other’s loss with profit to himself.” St. Thomas also says in 2.2, question 62, that the person who keeps somebody else’s money and fails to pay it in full is clearly impeding any chance of profit and therefore he is expected to offer something to compensate this hindrance in line with the agreement and circumstances. Hostiensis and William concur in this respect. Therefore, I protest your bill because I am unable to

take advantage of a profitable opportunity. Y ou have the obligation to compensate the loss I will thus suffer. There are other kinds of exchange, namely exchange of one currency for another. When opting for this, it is important to be mindful of any monetary trends in the sense that some currency is scarce at the moment and some is abundant. Banks have a similar practice: “Give me that money, and I will give you that in addition to this percentage.” Enough said on this.