Avignon Exchange
Encyclopedia
Foreign exchange market
The foreign exchange market is a global, worldwide decentralized financial market for trading currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends...
s in history, established in the Comtat Venaissin
Comtat Venaissin
The Comtat Venaissin, often called the Comtat for short , is the former name of the region around the city of Avignon in what is now the Provence-Alpes-Côte d'Azur region of France. It comprised roughly the area between the Rhône, the Durance and Mont Ventoux, with a small exclave located to the...
during the Avignon Papacy
Avignon Papacy
The Avignon Papacy was the period from 1309 to 1376 during which seven Popes resided in Avignon, in modern-day France. This arose from the conflict between the Papacy and the French crown....
. The Exchange was composed of the agents (factores) of the great Italian banking-houses, who acted as money-changers as well as financial intermediaries
Financial intermediary
Financial intermediation consists of “channeling funds between surplus and deficit agents”. A financial intermediary is a financial institution that connects surplus and deficit agents...
between the Apostolic Camera
Apostolic Camera
The Apostolic Camera, or in Latin Camera Apostolica or Apostolica Camera, is the central board of finance in the Papal administrative system, which at one time was of great importance in the government of the States of the Church, and in the administration of justice, led by the Camerlengo of the...
and its debtors and creditors. The most prosperous quarter of the city of Avignon, where the bankers settled, became known simply as the Exchange. According to de Roover, "Avignon can be considered an Italian colony, since the papal bankers were all Italians".
Avignon was the first legal body to regulate fiduciary transactions: a statute of Avignon, of 1243, contains a paragraph entitled De Litteris Cambii, "of bills of exchange".
Background
Unlike most medieval rulers who levied funds from sources of taxation relatively nearby, the papacy's primary source of income was constituted from taxes and tributes collected across Europe; moreover, the papacy had a gross geographic mismatch of its assetAsset
In financial accounting, assets are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset...
s and liabilities: money collected in France and Poland, for example might be spent for military reconquest in the Papal States
Papal States
The Papal State, State of the Church, or Pontifical States were among the major historical states of Italy from roughly the 6th century until the Italian peninsula was unified in 1861 by the Kingdom of Piedmont-Sardinia .The Papal States comprised territories under...
. The papacy soon discovered that the direct transfer or shipment of physical specie over long distances was not only risky but extremely expensive, and was thus forced to procure the services of international merchant-bankers
Merchant bank
A merchant bank is a financial institution which provides capital to companies in the form of share ownership instead of loans. A merchant bank also provides advisory on corporate matters to the firms they lend to....
who dealt in foreign exchange
Foreign exchange market
The foreign exchange market is a global, worldwide decentralized financial market for trading currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends...
from their branch
Branch
A branch or tree branch is a woody structural member connected to but not part of the central trunk of a tree...
es throughout the important commercial centers of Western Europe
Western Europe
Western Europe is a loose term for the collection of countries in the western most region of the European continents, though this definition is context-dependent and carries cultural and political connotations. One definition describes Western Europe as a geographic entity—the region lying in the...
not only in large centers but at the sites of the Champagne fairs
Champagne fairs
The Champagne fairs were an annual cycle of trading fairs held in towns in the Champagne and Brie regions of France in the Middle Ages. From their origins in local agricultural and stock fairs, the Champagne fairs became an important engine in the reviving economic history of medieval Europe,...
.
However, the Italian merchant-bankers could be of no assistance for funds collected in Eastern Europe
Eastern Europe
Eastern Europe is the eastern part of Europe. The term has widely disparate geopolitical, geographical, cultural and socioeconomic readings, which makes it highly context-dependent and even volatile, and there are "almost as many definitions of Eastern Europe as there are scholars of the region"...
(mainly Poland
Poland
Poland , officially the Republic of Poland , is a country in Central Europe bordered by Germany to the west; the Czech Republic and Slovakia to the south; Ukraine, Belarus and Lithuania to the east; and the Baltic Sea and Kaliningrad Oblast, a Russian exclave, to the north...
, Hungary
Hungary
Hungary , officially the Republic of Hungary , is a landlocked country in Central Europe. It is situated in the Carpathian Basin and is bordered by Slovakia to the north, Ukraine and Romania to the east, Serbia and Croatia to the south, Slovenia to the southwest and Austria to the west. The...
, and Bohemia
Bohemia
Bohemia is a historical region in central Europe, occupying the western two-thirds of the traditional Czech Lands. It is located in the contemporary Czech Republic with its capital in Prague...
), Scandinavia
Scandinavia
Scandinavia is a cultural, historical and ethno-linguistic region in northern Europe that includes the three kingdoms of Denmark, Norway and Sweden, characterized by their common ethno-cultural heritage and language. Modern Norway and Sweden proper are situated on the Scandinavian Peninsula,...
, and Northern Germany
Northern Germany
- Geography :The key terrain features of North Germany are the marshes along the coastline of the North Sea and Baltic Sea, and the geest and heaths inland. Also prominent are the low hills of the Baltic Uplands, the ground moraines, end moraines, sandur, glacial valleys, bogs, and Luch...
where there was no organized money market
Money market
The money market is a component of the financial markets for assets involved in short-term borrowing and lending with original maturities of one year or shorter time frames. Trading in the money markets involves Treasury bills, commercial paper, bankers' acceptances, certificates of deposit,...
at this time, and thus the direct transfer of funds was still required. The preferred alternative to shipping specie was to entrust small amounts to ecclesiastics who happened to be traveling to visit the pope or (more often) traveling merchants on their way to Bruges
Bruges
Bruges is the capital and largest city of the province of West Flanders in the Flemish Region of Belgium. It is located in the northwest of the country....
or Venice
Venice
Venice is a city in northern Italy which is renowned for the beauty of its setting, its architecture and its artworks. It is the capital of the Veneto region...
(however, to transfer funds from Krakow
Kraków
Kraków also Krakow, or Cracow , is the second largest and one of the oldest cities in Poland. Situated on the Vistula River in the Lesser Poland region, the city dates back to the 7th century. Kraków has traditionally been one of the leading centres of Polish academic, cultural, and artistic life...
to Bruges to Avignon took over a year). Even in Western Europe, direct transfer of funds was required when the foreign exchange market could not provide the necessary liquidity; for example, in 1327, 100,000 florins were sent from Avignon to Bologna
Bologna
Bologna is the capital city of Emilia-Romagna, in the Po Valley of Northern Italy. The city lies between the Po River and the Apennine Mountains, more specifically, between the Reno River and the Savena River. Bologna is a lively and cosmopolitan Italian college city, with spectacular history,...
in a caravan of fifteen pack animals guarded by an armed escort of forty-six.
The Apostolic Camera
Apostolic Camera
The Apostolic Camera, or in Latin Camera Apostolica or Apostolica Camera, is the central board of finance in the Papal administrative system, which at one time was of great importance in the government of the States of the Church, and in the administration of justice, led by the Camerlengo of the...
, the papal treasury, was established in the 13th century, with close ties to Italian merchant bankers, who were given the title mercatores camerae apostolicae ("mercatores" of the Apostolic Camera). The papal residences of Rome
Rome
Rome is the capital of Italy and the country's largest and most populated city and comune, with over 2.7 million residents in . The city is located in the central-western portion of the Italian Peninsula, on the Tiber River within the Lazio region of Italy.Rome's history spans two and a half...
, Viterbo
Viterbo
See also Viterbo, Texas and Viterbo UniversityViterbo is an ancient city and comune in the Lazio region of central Italy, the capital of the province of Viterbo. It is approximately 80 driving / 80 walking kilometers north of GRA on the Via Cassia, and it is surrounded by the Monti Cimini and...
, and Rieti
Rieti
Rieti is a city and comune in Lazio, central Italy, with a population of c. 47,700. It is the capital of province of Rieti.The town centre rests on a small hilltop, commanding a wide plain at the southern edge of an ancient lake. The area is now the fertile basin of the Velino River...
were close to the two main banking centers in Italy: Florence
Florence
Florence is the capital city of the Italian region of Tuscany and of the province of Florence. It is the most populous city in Tuscany, with approximately 370,000 inhabitants, expanding to over 1.5 million in the metropolitan area....
and Siena
Siena
Siena is a city in Tuscany, Italy. It is the capital of the province of Siena.The historic centre of Siena has been declared by UNESCO a World Heritage Site. It is one of the nation's most visited tourist attractions, with over 163,000 international arrivals in 2008...
; however, these connections were severed during the reign of Pope Clement V
Pope Clement V
Pope Clement V, born Raymond Bertrand de Got was Pope from 1305 to his death...
(1305–1315) as he wandered through Languedoc
Languedoc
Languedoc is a former province of France, now continued in the modern-day régions of Languedoc-Roussillon and Midi-Pyrénées in the south of France, and whose capital city was Toulouse, now in Midi-Pyrénées. It had an area of approximately 42,700 km² .-Geographical Extent:The traditional...
and Provence
Provence
Provence ; Provençal: Provença in classical norm or Prouvènço in Mistralian norm) is a region of south eastern France on the Mediterranean adjacent to Italy. It is part of the administrative région of Provence-Alpes-Côte d'Azur...
.
Only when Pope John XXII
Pope John XXII
Pope John XXII , born Jacques Duèze , was pope from 1316 to 1334. He was the second Pope of the Avignon Papacy , elected by a conclave in Lyon assembled by Philip V of France...
(1316–1334) began the construction of a permanent papal residence in Avignon, the Palais des Papes
Palais des Papes
The Palais des Papes is a historical palace in Avignon, southern France, one of the largest and most important medieval Gothic buildings in Europe....
, did the major Italian banks open branches in the Curia
Curia
A curia in early Roman times was a subdivision of the people, i.e. more or less a tribe, and with a metonymy it came to mean also the meeting place where the tribe discussed its affairs...
and resume their dealings with the Camera. However, the closeness of this relationship never equaled the "intimate" management of the Gran Tavola
Gran Tavola
During the Middle Ages, the Gran Tavola was the largest Sienese bank, and one of the most powerful banks in Europe from 1255 to 1298...
of Orlando Bonsignori
Orlando Bonsignori
Orlando Bonsignori was an Italian banker from Siena.He was the son of Bonsignore di Bernardo, a minor merchant, but Orlando, together with his brother Bonifazio, expanded the family fortunes until in the 1230 he was among the largest Sienese taxpayers...
in the 13th century; instead of entrusting idle funds to merchant bankers for investment, the papal Chamberlain, Treasurer, and Vice-treasurer (all high-ranking ecclesiastics, assisted by a "throng" of clerics, notaries, and laymen) managed these funds more physically, keeping them in a "strong room
Bank vault
A bank vault is a secure space where money, valuables, records, and documents can be stored. It is intended to protect their contents from theft, unauthorized use, fire, natural disasters, and other threats, just like a safe...
" built specifically for this purpose.
Theology of usury
Scholasticism
Scholasticism is a method of critical thought which dominated teaching by the academics of medieval universities in Europe from about 1100–1500, and a program of employing that method in articulating and defending orthodoxy in an increasingly pluralistic context...
economic philosophers had constructed a wide variety of prohibitions and loopholes related to the conduct of traditional lending (usury
Usury
Usury Originally, when the charging of interest was still banned by Christian churches, usury simply meant the charging of interest at any rate . In countries where the charging of interest became acceptable, the term came to be used for interest above the rate allowed by law...
), there is very little scholastic thought on foreign exchange transactions except insofar as they related to the covering of loan repayment. de Roover notes that:
- "One paradoxical result of this controversy was that pawnbrokers and small money-lenders were the main victims of the campaigns waged against usury by friars like Bernardino of FeltreBernardine of FeltreThe Blessed Bernardine of Feltre was a Friar Minor and missionary, b. at Feltre, Italy, in 1439 and d. at Pavia, 28 September 1494. He is remembered in connexion with the monti di pietà of which he was the reorganizer and, in a certain sense, the founder, together with the Blessed Michele Carcano...
, but the big bankers and international connections were left undisturbed. Far from being censured they were called "the peculiarly beloved sons of the Church" and prided themselves in being the Pope's exchangers. In fact, their services were indispensable for the transfer of papal funds."
Thus, "Profit and Loss on Exchange" (Pro e danno di cambio) was not considered usury and was frequently listed in accounting books.
History
From 1316 to 1342, the Avignon popes relied on the exchange services of three large FlorentineFlorence
Florence is the capital city of the Italian region of Tuscany and of the province of Florence. It is the most populous city in Tuscany, with approximately 370,000 inhabitants, expanding to over 1.5 million in the metropolitan area....
banking houses—the Bardi
Bardi family
The Bardi family was an influential Florentine family that started the powerful banking company, the Compagnia dei Bardi.Along with the Peruzzi family, the Bardis lent Edward III of England 400,000 Gold Florins, which he never repaid....
, Peruzzi
Peruzzi
The Peruzzi were bankers of Florence, among the leading families of the city in the 14th century, before the rise to prominence of the Medici. Their modest antecedents stretched back to the mid 11th century, according to the family's genealogist Luigi Passerini, but a restructuring of the Peruzzii...
, and Acciaioli—all of whom failed
Systemic risk
In finance, systemic risk is the risk of collapse of an entire financial system or entire market, as opposed to risk associated with any one individual entity, group or component of a system. It can be defined as "financial system instability, potentially catastrophic, caused or exacerbated by...
in 1342, bringing down the entire papal transfer system with them.
From 1342 to 1362, the Apostolic Camera
Apostolic Camera
The Apostolic Camera, or in Latin Camera Apostolica or Apostolica Camera, is the central board of finance in the Papal administrative system, which at one time was of great importance in the government of the States of the Church, and in the administration of justice, led by the Camerlengo of the...
was required to use the services of several smaller and weaker firms from Asti
Asti
Asti is a city and comune of about 75,000 inhabitants located in the Piedmont region of northwestern Italy, about 55 kilometres east of Turin in the plain of the Tanaro River...
(especially Malabayla), Lucca
Lucca
Lucca is a city and comune in Tuscany, central Italy, situated on the river Serchio in a fertile plainnear the Tyrrhenian Sea. It is the capital city of the Province of Lucca...
, and Pistoia
Pistoia
Pistoia is a city and comune in the Tuscany region of Italy, the capital of a province of the same name, located about 30 km west and north of Florence and is crossed by the Ombrone Pistoiese, a tributary of the River Arno.-History:...
; the Camera was unsuccessful in trying to build up the capacity of each of these bankers.
However, in 1362, the papacy was able to employ the services of the Alberti antichi
Alberti (surname)
Alberti is a common surname in Italian language and derives from given name Alberto, Latin translation of Germanic Albert.Alberti may refer to:-People:*Alberti, Florentine family.*Leon Battista Alberti ; Italian polymath, active in many fields...
banking house in Florence, which had recently risen to prominence. The papacy did not use the mechanism of the bill of exchange
Negotiable instrument
A negotiable instrument is a document guaranteeing the payment of a specific amount of money, either on demand, or at a set time. According to the Section 13 of the Negotiable Instruments Act, 1881 in India, a negotiable instrument means a promissory note, bill of exchange or cheque payable either...
(which had been common since the 13th century), but rather employed a unique procedure which required a receipt
Receipt
A receipt is a written acknowledgment that a specified article or sum of money has been received as an exchange for goods or services. The receipt is evidence of purchase of the property or service obtained in the exchange.-Printed:...
in notarial form for all transfers to Avignon
Avignon
Avignon is a French commune in southeastern France in the départment of the Vaucluse bordered by the left bank of the Rhône river. Of the 94,787 inhabitants of the city on 1 January 2010, 12 000 live in the ancient town centre surrounded by its medieval ramparts.Often referred to as the...
called the instrumentum cambii; this instrument—always made out in duplicate or triplicate—specified the amount received by the banker and proxy and recorded a promise to transmit to Avignon and pay to the pope or his agent a certain amount. One copy of the instrument was sent to Avignon by the papal carrier which enabled the Avignon administration to obtain payment from either the banker or their Avignon representative. The use of written documents was considered "not businesslike" by contemporaries as it required the constant "intervention of notaries".
The instrumentum cambii (also known as an "Avisa") did not eliminate the possibility of fraud, but rather created different possibilities for misdealings, as seen with a 1359 exchange between Venice and Avignon.
The Avignon branch of the Medici bank
Medici bank
The Medici Bank was a financial institution created by the Medici family in Italy during the 15th century. It was the largest and most respected bank in Europe during its prime. There are some estimates that the Medici family was, for a period of time, the wealthiest family in Europe...
was not established until 1446, the same year as the London branch.