Explaining Monetary and Financial Innovation

Although ancient Egypt and Mesopotamia are often considered to have been very similar in their economic structures, it is clear that the attitudes toward silver differed substantially between the two. This paper surveys the evidence for the economic uses of silver in both cultures during the third and second millennia BC, and attempts to explain the reasons for the differences we can observe in the ancient source material.

The economic revolution produced by the invention of coinage was both conducive to and facilitated by a number of smaller, incremental innovations, some in the coin itself (the use of silver rather than electrum, the use of bronze for small amounts, fiduciary coinage), some in the ways of doing business (retail commerce, salaried labor, new credit systems such as the small lender, the bank, bottomry loans and transfer orders), some in the management of money (public finance). Paradoxically but not uncharacteristically, it was the more primitive Greek society that was more open to innovation, and that used the new coins in ways undreamed of in the more developed Near Eastern economies. War may have been what engendered the original innovation; peace was what nourished it, so that it grew and prospered.

This communication describes the emergence and spread of coins in ancient India. The barter system of exchange of goods was prevalent in ancient India from the Vedic period. The Indus valley people may have used precious metals of fixed weights such as silver for buying goods which is evident from excavations in the DK area at Mohenjo-Daro. But eventually barter method gave way slowly to the money economy through the medium of coins for their obvious advantages. The origin of coins, also known as metallic money in India dates back to the sixth–seventh centuries BC and it is probable that Lydia, India and China invented coinage around the same time and also independent of each other. The emergence of coinage was one of the important monetary innovations in ancient India. The formation of ‘janapadas’ and the evolution of the second urbanization were the catalysts for the invention of coinage. The money economy originated in India during the ‘janapada’ period and it grew markedly during the Magadha, Nanda and Mauryan rule which needed the maintenance of a huge army as well as official machinery to run the big empire. Coinage and urbanization which are linked also facilitated the growth of trade in the country internally as well as with other countries. Maritime trade prospered especially with Rome during the Satavahana rule in the Deccan. The lack of trade barriers between ‘janapadas’ and the presence of local rulers even during the rule of major dynasties might have contributed to the growth of trade.

It is widely believed that bronze coins appeared in China during the Spring and Autumn period and that their circulation expanded rapidly during the Warring States period.

This chapter deals with coinage minted during the Achaemenid Persian imperial period that may be regarded as royal: (a) the gold darics and silver sigloi first created in the late sixth century BC as a successor to the royal coinage of Lydia and (b) other issues from the late fifth century onwards which draw on the iconography of the daric/siglos coinage or have other royal associations and which began to appear at a time when the production of darics and sigloi had diminished. Coined money was a cultural feature, even peculiarity, of the empire’s Aegean and East Mediterranean edges, and the various innovations involved in the story of royal coinage (a specifically west Anatolian phenomenon) are most readily understood in political or ideological terms rather than economic ones.

After the conquests of Alexander the Great coinage took on new forms and spread into geographic regions it had not previously reached. Moreover it began to be issued into and used within new political and economic constructs, and it arguably started to reach sectors of the economy for which it had previously been unsuited for use. This paper focuses on these four types of change: form, geographic spread and an attendant shift in scale, systemic change and manipulation, and diversification of use. It offers outlines of the evidence for them as it is exhibited by some of the coinage, and also suggests ways in which numismatists and economic historians of the ancient world have attempted to rationalise or explain them.

The early thirteenth century saw the introduction, first in Venice, and then across northern Italy of stable larger good silver grossi in contrast to the small increasingly debased piccoli, which turned into black money and eventually copper. The later thirteenth century saw the introduction, first in Florence, and then across northern Italy, of stable gold coinage, which revived the three metal coinage of ancient Rome. More importantly, beginning at the end of the twelfth century in Genoa, the means of cash-less payments, both internationally and locally, evolved across northern Italy. There were precursors in the Islamic world, but the evolution in northern Italy had no counterparts elsewhere. I touch on bills of exchange, cheques, international groups of companies, public banks, state bonds, and stock markets, which also developed in the same period.

It was in North-western Europe where the crucial financial and monetary innovations were made during the early modern period. North-western Europe may here be defined as a larger area comprising the Netherlands, England, Northern France, as well as the northern parts of the Holy Roman Empire of German Nations.

We examine the experience of an innovative fiat money regime, introduced by the Bank of Amsterdam in the late seventeenth century and persisting until the downfall of the Dutch Republic in 1795. The pan-European competition among international monies occurred beyond the legal domain of any one political authority, or cluster of local authorities. Competition was not framed by legally derived spillovers, so bad money was shunned.

Spanish history shows how risky it might be to judge the quality of the institutions according to the economic results of a country at any given moment. Independent of the type of government or the way of administrating power, it was essential for countries to make an effort to keep their economy open and competitive. Spain boasted an innovative financial and monetary system in the 16th century, along with other private and public institutions that contributed to its economic growth. This innovative capacity came primarily from the private sector, and it was possible because the Crown encouraged the opening of the Spanish economy, attracting entrepreneurs and bankers from all over Europe. The reputation of its currency and public debt attracted investors. The transfer of persons and goods aided business with other European territories whose economies had also been expanding since the end of the Middle Ages.

The emergence of the Eurodollar market for deposits, loans and bonds is a major example of a monetary and financial innovation that was driven by competition between two financial centres, their regulators and their governments. The Eurodollar money market is of particular interest because the incumbent tried to engage the innovator in a regulatory and tax cartel. When this attempt failed, she decided to imitate the challenger's innovations. The Eurodollar money market was invented by the British banks and the Bank of England, the Eurodollar bond market also by the British government. In the US, the Federal Reserve and Democratic administrations tried to suppress competition from the Eurodollar market while Republican administrations and Wall Street tended to accept the challenge from London. The Fed's restrictive stance was independent of whether its Governor had been nominated by a Republican or a Democratic President. .