The Design of Debt Clearing Markets: Clearinghouse Mechanisms in Pre-Industrial Europe

Abstract

We examine the evolution of decentralized clearinghouse mechanisms that were in use throughout Europe from the 13th century to the 18th century; in particular, we explore the clearing of non- or limited-tradable debts like bills of exchange. We construct a theoretical model of these clearinghouse mechanisms, and show that the specific decentralized multilateral clearing algorithms known as rescontre, skontrieren or virement des parties used by merchants were efficient in specific historical contexts. Our analysis contributes to the understanding of both the emergence and evolution of these mechanisms during late medieval and early modern fairs, and their robustness during the 17th and 18th centuries.