Early Elizabethan investigations into exchange and the value of sterling, 1558-1568

Abstract

T he pound sterling has served as England's (and later Britain's) principal money of account for almost 1,000 years. It survived the indignity of decimalization in 1971 but lost its traditional components of 20 shillings to the pound and 12 pennies to the shilling in favour of 100 units masquerading as pennies or pence. At the end of this millennium, when sterling's very existence is under threat, it may be instructive to consider how the first Elizabethans measured their pound's value against other currencies and tried to ensure that it was valued fairly. The external value of the pound was measured by the rate expressed in international bills of exchange. In England this type of financial instrument was first used in the fourteenth century and by the midsixteenth century was more or less fully developed. A number of treatises written at that time describe the theory and practice of exchange.I Briefly, a bill of exchange performed either of two functions: it enabled merchants or monarchs to transfer funds from one country to another, typically from London to Antwerp or vice versa; alternatively, it allowed merchants or temporarily embarrassed gentlemen to borrow money. Both cases involved borrowing and lending, but in the first the loan was repaid abroad in another currency, whereas in the second it was repaid at home by a process of exchange and re-change, generally termed dry exchange. In dealings with the Netherlands, London was the head of the exchange, so wherever a bill originated the exchange rate was always expressed as so many shillings and pennies in Flemish money of account (the pound Flemish or groot) for each 20s. sterling. When the market functioned smoothly the rate in Antwerp was invariably lower than that in London, the difference being known as the spread of the exchange. The movement of funds was so common that exchange rates were public knowledge in Lombard Street and on the Antwerp bourse. Business correspondents routinely quoted current rates in their letters, which sped between them in two to four days. Anyone could buy a bill (lend or deliver money) at the current rate and if his name was good he could sell one (borrow or take up) at the same rate.