Managing exchange risk: foreign monies and private trade finance in pre-modern long-distance trade (or why did bills of exchange not circulate beyond Europe?)

Irigoin, Alejandra ORCID: 0000-0001-5395-1537 (2025) Managing exchange risk: foreign monies and private trade finance in pre-modern long-distance trade (or why did bills of exchange not circulate beyond Europe?). Economic History Working Papers (381). London School of Economics and Political Science, London, UK.

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Abstract

By specifying the specie on which returns were to be repaid respondentia was a ubiquitous financial instrument to carry international trade in which silver was “essential” for its continuation. Where multiple currencies existed and silver was the preferred money, imported silver species performed as foreign currency. Thus, the import of foreign coins created issues for prices, profits and exchange rates. Eighteenth century Europeans alternatively used respondentia or bills depending on the monetary context, casting a shade of doubt on the inherent efficiency of a cashless means of payment. Until the 1820s, private bills of exchange did not circulate where cash had a premium. Europeans developed means to regulate the price of foreign coins and exchange rates. Elsewhere respondentia allowed to hedge against exchange risk and propitiated arbitrage profits, giving an advantage over bills. The article documents the global scope of the instrument; it explains the exchange nature of the contract and explores the issues that respondentia came to solve. It highlights the role of monies of account Europeans used in pricing foreign currencies in international trade.

Item Type:	Monograph (Working Paper)
Official URL:	https://www.lse.ac.uk/Economic-History/Working-Pap...
Additional Information:	© 2025 The Authors
Divisions:	Economic History
Subjects:	H Social Sciences > HC Economic History and Conditions H Social Sciences > HG Finance H Social Sciences > HF Commerce
JEL classification:	N - Economic History > N2 - Financial Markets and Institutions > N20 - General, International, or Comparative F - International Economics > F3 - International Finance > F31 - Foreign Exchange G - Financial Economics > G2 - Financial Institutions and Services > G23 - Pension Funds; Other Private Financial Institutions G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency; Event Studies
Date Deposited:	01 Jul 2025 13:18
Last Modified:	17 Jul 2025 23:18
URI:	http://eprints.lse.ac.uk/id/eprint/128607

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