Some Determinants of Local Exchange Rates and in Early Modern Mexican Mining Sites, Sixteenth and Seventeenth Centuries

Abstract

Silver bullion produced in Mexican mining towns in the sixteenth and seventeenth centuries was exchanged for specie, which bore a seemingly high premium. This exchange mechanism was part of a wide network of transactions, which involved credit instruments that linked Spanish colonial mining towns with European financial centres. The so-called rate of discount which silver merchants charged mine owners to exchange bullion for specie was one of the main reasons of discontent among mine owners, who perceived it as grasping. An analysis of the rate of discount will be carried out by placing it within the context of credit and exchange markets, as well as by highlighting its links to variations in the price level. Further, exchange rate fluctuations in European currency markets will be compared to rate of discount variations in order to assess whether they were set arbitrarily by silver merchants, or if they were a consequence of the volatile nature of currency markets