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Bills of exchange development of banking industry

Definition

Bills of exchange refer to written orders used primarily in international trade that bind one party to pay a fixed sum of money to another party at a predetermined future date. Their use played a significant role in developing modern banking systems.

Analogy

It's like writing a check today - you're promising that you will pay someone else a specific amount at some point in time. This system allowed for more complex financial transactions, just like online banking allows us today.

Related terms

Medici Bank: One of the most prosperous and respected institutions during its prime (15th – 17th centuries), it helped establish banking practices still used today such as bills of exchange.

Mercantilism: An economic theory that trade generates wealth and is stimulated by accumulation of profitable balances, which a country should encourage by means of protectionism.

Usury Laws: Laws restricting how much interest can be charged on a loan, which were often circumvented through the use of bills of exchange.