‘Buying and Selling of Money for Time’: Foreign Exchange and Interest Rates in Medieval Europe

This paper argues that the relatively voluminous surviving records about foreign exchange (FX) rates in the Middle Ages can help to illuminate the much murkier question of medieval interest rates. We first explain how the medieval FX market operated and its links to the money market. Next, we set out the sources of our data on medieval exchange rates and the methodology for calculating implicit interest rates from the spreads between these exchange rates as quoted at seven different financial centres. Our results demonstrate that the FX rates did include an element of interest and that FX transactions could have been used to circumvent the usury prohibition. Further, these implicit interest rates are comparable to those charged on government debt and consumer credit. We also show that there were distinctive seasonal patterns in these interest rates at different financial centres related to their particular economic and trading patterns. Finally, our results provide further evidence of a long-term reduction in the risk-free rate of interest after c.1350.