Letters of Credit

Eventually letters of credit and contracts grew. Now the Venetian merchant could sail to England to collect wool gathered by contract from a monastery. In return for their wool shearing for five years, he would guarantee them set payments in ducats or florins, although he normally brought them goods they ordered from Venetian merchants--silks, spices, glassware, or wine. Thus he made a profit from the wool back in Venice and a profit from buying goods for the English monastery.

On his return to Venice, the enterprising merchant would sell his cargo to the wool merchant in return for a note, and then take this note to a glassmaker and sell it for a load of valuable Venetian glass.

In time, the notes led to the rise of banking houses, though much different from the banks we know today. Intended mainly to finance large deals and serve the wealthy merchants, there were few controls on these banks. They were definitely not for the common man. They were not places you stored your money for a rainy day, but houses that guaranteed the value of a merchant's note or contract, all for a fee.

Table of Contents