International credit market integration in northwestern Europe in the 1670s

Abstract

This article studies the financial market integration in the s by examining the effectiveness of triangular exchange arbitrage. The results suggest that international credit markets based on bills of exchange in northwestern Europe were well integrated and responded to exchange-rate differences quickly. The speed of adjustment, ranging between one and three weeks, accorded with the speed of communication, but the transaction cost associated with exchange arbitrage was much lower than that of shipping bullion. Although warfare had a disruptive effect on exchange arbitrage by increasing transaction cost, markets were resilient in remaining efficient.Financial markets bridge the gap between credit seekers and those looking to invest, allowing capital to move towards its most productive use. Well-integrated and efficient financial markets promote resource allocation and facilitate economic development. The integration of European financial markets in the eighteenth and nineteenth centuries has been quantitatively analysed, establishing that European financial markets were already highly integrated and efficient in exploiting arbitrage opportunities (Schubert ; Neal ; Flandreau et al. a; Nogues-Marco ; Bignon et al. ). Since the seventeenth century, bills of exchange were commonly discounted and assigned to a third party with endorsement. Banks were established to manage monetary affairs by receiving deposits, issuing bank money and processing bills of exchange (Sieveking ; Van Dillen ; 't Hart et al. , pp. -). Furthermore, information about the state of markets was widely available and easily accessed by the regular issue of price currents: sheets listing the current prices of commodities and exchange rates traded in markets (Neal , pp. -;

The meandering trajectories of financial innovations: commercial paper and its uses in sixteenth-century Lyon's trading networks

“…The article then focuses on the transferability and negotiability of commercial paper, deemed essential components in the modernisation of banking. By facilitating liquidity and versatility in financial dealings, negotiable bills are considered to have amplified the efficiency of monetary systems (Munro 2003; Li 2019; Accominotti et al 2021). Although the modern economy has seen a gradual fading of negotiable instruments, supplanted by electronic transfers, the fundamental idea of shifting and managing financial risk, which sparked the rise of negotiable instruments during the early modern period, still resonates in current financial mechanisms like credit derivatives and default swaps.…”