Banking and Money
A Bill of Exchange
The real function of a bank was that it facilitated commerce. In earlier centuries, merchants tended to travel with the goods they were selling. They travelled in wagon trains of various sizes, often forming partnerships with other merchants to hire not only transport but protection as well. The Florentine merchant who wished to sell spices or jewelry in Bruges actually travelled to the city. He may well have written to someone or even have a representative in Bruges, who had assured him of a good market and perhaps arranged some meetings. Upon selling the goods, the merchant was paid in currency. He either returned home with his strongbox, or more likely he then used some of that money to make some purchases for the purpose of sale back home in Tuscany.
This sort of travel obviously was not very efficient. There was a practical limit on moving goods, for the merchant could travel only so many times a year. This also limited how many markets he could exploit. Travelling with money was always chancy, as the Robin Hood legends make clear, and while the merchant was gone he could not also be tended to the business back in Florence.
The famous fairs of Champagne developed in the 12th century in response to this. The fairs were held at fixed times and operated according to their own laws (local customary law rarely had much to say about resolving commercial disputes). With so many merchants from so many places gathered together, the Florentine merchant could exploit more markets per trip. Still, it was limited, and by 1300 the Champage fairs were in decline.
They were being replaced by partnerships and family businesses that learned to do commerce at a distance. Our merchant of Florence still had his factor in Bruges keeping him informed, as did the Brugeois have their Florentine factors. When a deal was to be done, it was done by letter. The goods were shipped by hiring professional transporters. Most importantly, though, no money moved between the cities. Instead, money was moved from one account to another, between banks in Bruges and in Florence. The device that made this possible was called a bill of exchange.