The ‘Buying and Selling of Money for Time’: Foreign Exchange and Interest Rates in Medieval Europe

Interest rates are one of the most (if not the most) important economic variables. Today, ready access to credit at low rates has encouraged business investment and economic growth,property ownership, a high standard of living and large governmental expenditure, while the
manipulation of base interest rates by governments or central banks is used as a macroeconomic tool. The medieval world, by contrast, has been seen as a period of restricted access to credit and high interest rates. In part, this has been explained in terms of the religious prohibition of usury (Gilchrist, 1969). As a result, loans would be expensive to repay, with a negative knock on effect on the viability of business activity and thus economic growth. Recent work on the middle ages has qualified this negative depiction, presenting evidence of financial innovation (Bell et al.,2007; Bell and Sutcliffe, 2010) and widespread use of credit even in rural areas (Briggs, 2009). Further, interest rates are a vital input into most economic theories and models. A better understanding of the interest rates prevailing during the Middle Ages therefore has the potential to contribute greatly to our knowledge of medieval financial and economic development by facilitating the application of modern ideas and models.