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Writings, notes and papers > Genoa and the history of finance: a series of FIRSTS? > Chapter 9
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Chapter 9 - Clearing house
Abstract
The increase in exchange is a powerful factor in economic growth, as long as there is no shortage of the means of payment. If this happens, the multiplication of business transactions stops. A clever way to overcome the problem is with the balancing of debits and credits: an easy process when only two people are involved but more complicated with several people in the picture. A solution to this was presented by the clearing houses linked to the Genoese exchange fairs (at their height between 1580 and 1630) where the business transactions of half of Europe were conducted and cleared. Only later, in 1773, the first clearing house of the contemporary era would open: the London Clearing HouseDefinition
Clearing House. An institution in London established by the bankers for the adjustment of their mutual claims for cheques and bills, by exchanging them and settling the balances. Extended to imitations of this in other places, and to institutions of a similar nature, as the railway clearing house, an office in which the mutual claims of the different railways for through tickets and freights, etc. are settled (The Oxford English Dictionary, 2nd ed.).Documentation
The three tables below document the balance sheets of private citizens’ wherein sums, which have to be collected, are listed (together with the names of the debtors) in the left hand column and those to be paid are listed in the right hand column. 29Bilanzo de Nicolò Pallavicino, Paolo e Battista Serra de fera
de Pasqua 1600 fatta in Piacenza
Dare
Avere
Ag., Ger. e G. B.Merelli
Scm
2297.13.06
Conrado et Andrea Spinoli
Scm
2781.17.11
Bendinelli Negrone
Scm
447.00.04
Steff. E Mich. Giustiniani
Scm
4693.15.00
A.Funch per Cr. Fortembach
Scm
241.10.03
Gio, Nic. e Bart. Garibaldi
Scm
1975.17.03
Luca et Symon Ayroli
Scm
2000.10.08
Giac. Cotta e fratelli
Scm
2495.13.04
....
...
Totale
Scm
202656.00.00
Totale
Scm
202656.00.00
Bilanso di Agostino Gieronimo e Gio Batta Merelli di pagamenti di fera
di Pasqua fati in Piacensa a 9 di maggio 1600. Cavato in Piacenza
à 9 di maggio 1600
Dare
Avere
M.A. Aresio e G.Guiccioni
Scm
3692.14.03
Franc. Grimaldo
Scm
2500.00.00
Andrea, Ambr. E Ag. Raggi
Scm
5203.03.09
N Pallavicino, P e B Serra
Scm
2297.11.06
Gregorio Garbarino
Scm
3065.14.11
Giac. Saluzzo e fratelli
Scm
4920.07.05
N Pallavicino, P e B Serra
Scm
43901.02.03
Don Cosmo Centurione
Scm
1960.00.00
...
...
Totale
Scm
47119.00.00
Totale
Scm
47119.00.00
1600 addì 9 maggio in Piacensa. Bilanzo de signori Conrado e Andrea Spinoli
Dare
Avere
Filippo e Piero Mannelli
Scm
324.15.06
Giac. Cotta e fratelli
Scm
9121.10.05
N Pallavicino, P e B Serra
Scm
2781.17.11
Ger, Fr. E G.A. Marini
Scm
3048.08.01
Gio Batta Frugone
Scm
3645.04.07
G.S. Barabino per M.Spinola
Scm
25097.00.00
Giac. Saluzzo e fratelli
Scm
23393.02.06
Lorenzo e Aless. Strozzi
Scm
2774.16.04
...
...
Totale
Scm
75156.00.00
Totale
Scm
75156.00.00
The highlighted lines show that the three firms were linked in credit-debit terms: Messrs Merelli owed money to Pallavicino and Serra, who owed money to the Spinola. In accordance with double-entry system, their credits and debits are entered respectively on the left and on the right side of each balance sheet, the total amount of the former being equal to that of the latter. Because of the limited space available here, it is not possible to show that this type of document was common to 149 operators present at the Easter exchange fair held in Piacenza in 1600. It is precisely thanks to the use of double-entry system and in symbiosis with the Genoese exchange fairs, that the first clearing house was born.
Historical background
From the end of the XIV century through the late XIX century, bills of exchange (“cambi”) were the only known method of international payment other than cash. Their use was hindered for a long time by the fact that they were payable only at the domicile of the drawee. Therefore creditors and debtors began to meet, at prearranged locations and at set times, to settle their outstanding accounts.
Exchange fairs of modern times were in fact markets held periodically with the express purpose of dealing with “cambi” to and from the main cities of the whole continent. These fairs were a Genoese creation, based on the mixed exchange and merchandise fairs held especially in Geneva, Antwerp and Lyons in the XV and XVI centuries. Excluded for political reasons from the Lyons market, Genoese businessmen had to move their activities to Besançon in 1535. They then kept meeting both there and in other locations such as Piacenza, Novi Ligure and, later, Sestri Levante.
The fairs were regulated by rules formulated by the Genoese Senate and took place in a government building or a private house. They usually lasted eight days and were held quarterly; depending on the time when they took place, were called Apparition, Easter, August and All Saints fairs. These events were administered mainly by the Genoese with the occasional intervention of foreign merchants and had a very long life, lasting until at least 1763. The financial transactions consisted of the settlement of both commercial business and interest bearing loans (the latter considered illegal by the Church and in the eyes of the law). Besides making it possible to pay for merchandise in far away lands without taking risks with the transportation of cash, it was also possible to repay a loan, concealing the interest in the differences in exchange rate between various cities. The golden age of the Genoese fairs was the three decades around the year 1600, when they played a major role in funding the Spanish crown.The main function of the fairs was to:
1) accept bills of exchange previously issued in other cities and due to expire at the fair.
2) negotiate new bills of exchange issued at fairs and due to expire in the cities.
3) settle previous transactions via reciprocal compensation and payment in cash of outstanding balances.To conduct these operations a common currency was necessary as a reference. The system was based on the “scudo di marco” as currency unit, on “gold scudo”as actual money and on a fixed ratio between the two. The fairs worked therefore like a booster which every three months attracted bills of exchange from across Europe, issued new ones and completed all transactions with a minimal use of hard cash. The participants, called “cambisti” (exchangers) or “trattanti” (dealer), could be owners of trading businesses, banks from the various cities where fairs took place, or employees, agents or representatives acting by proxy.
Each fair followed a rigorous agenda. The first day involved the registration of the proxys of participants and the acceptances of the bills of exchange due to expire. During the second day each operator calculated the difference between the debits to and the credits vis à vis every other participant and gathered together the resulting totals in a balance sheet called the “bilancio delle accettazioni” (balance sheet of acceptances). The balances of the participants were verified and agreement reached on credits and debits which could be reciprocally cancelled and on outstanding sums due. In the following days the official exchange rate of the “marco” currency unit for other cities was established and new bills of exchange were issued and sold.The bankers updated their business transactions one by one and their reciprocal financial positions. The results were gathered together in a final “balance sheet of payments” similar to the ones previously illustrated, recording the sums owed and expected from each participant. Debtors then verified the accuracy of the amounts they owed on the balance sheets by comparison with the balance sheets of their creditors, and vice versa: the amounts had to correspond, albeit with opposite plus or minus signs, and their sum had to add up to zero. On the last day the balance sheets were countersigned by the bankers or by their attorneys and were delivered to the Consul of the fair, who applied his official seal and closed the fair. “In a moment”, recounts a witness, “the room is left empty and, without regard for the time or the season, the participants set off back to their homes”.
Notes:
29 A.S.G., Notai giudiziari, Gio Maria Pinceti, n. 713-715. ^
