Coinage, Credit, and Banking in the Hanseatic League

The Hanseatic League’s commercial dominance rested not only on its control of the trade routes and the kontore, but also on a sophisticated system of money and credit that allowed the merchants of the League to finance their long-distance trade. The bills of exchange, the warehouse receipts, the bills of lading, and the other instruments of credit that the League’s merchants developed were, in the late Middle Ages, among the most advanced in Europe, and they anticipated many of the institutions of modern banking by three or four centuries.

This article describes the money and credit of the League, beginning with the coinage that circulated in the Hanseatic cities, continuing with the instruments of credit that the merchants used to finance their trade, and ending with the moneylenders and the early banks that provided the capital for the League’s long-distance commerce.

The coinage

The coinage that circulated in the Hanseatic cities was, in the first instance, the coinage of the surrounding states. The principal coins were the English pound sterling, the French livre tournois, the Flemish gros, the German groschen, the Bohemian groschen, the Polish grosz, and the various local coins of the Baltic cities. The League did not, for most of its history, issue its own coinage, and the member cities had to accept whatever coinage was in circulation in their respective territories.

The lack of a common coinage was a constant source of difficulty for the League’s merchants. The exchange rates between the different coins fluctuated, sometimes wildly, and the merchants had to bear the cost of the fluctuations. The Hansetag issued ordinances that were intended to standardise the exchange rates, but the ordinances were not always effective, and the fluctuations remained a major source of risk.

The League’s response to the lack of a common coinage was to develop a sophisticated system of money-changing. The money-changers of the Hanseatic cities were, in the late Middle Ages, among the most skilled in Europe, and they developed a system of arbitrage that allowed them to profit from the differences in exchange rates between different cities. The money-changers were also the principal source of credit for the League’s merchants, and they played a key role in the development of the bill of exchange.

The bill of exchange

The bill of exchange was the most important of the instruments of credit used by the League’s merchants. The bill of exchange was a written order by which one party (the drawer) instructed another party (the drawee) to pay a specified sum of money to a third party (the payee) at a specified future date. The bill of exchange was, in the first instance, a device for transferring money from one place to another without the physical transportation of coin, and it was an essential tool of the long-distance trade.

The bill of exchange was used by Hanseatic merchants from the thirteenth century onward, and it was one of the principal innovations of the medieval commercial system. The bill of exchange allowed a merchant in Lübeck to pay a debt in Bruges without having to transport the money, and it allowed a merchant in Novgorod to receive payment for a sale in London without having to wait for the return of the ships.

A useful historical note: the bill of exchange as the Hanseatic merchants knew it was not a “bill of exchange” in the modern sense of an unconditional promise to pay. It was a tratte, drawn in connection with a specific shipment of goods, and the obligation to pay was conditional on the goods arriving. The transformation into the modern unconditional bill was a later development, associated with the Italian and Dutch merchant banks of the 16th–17th centuries.

The bill of exchange was regulated by Hanseatic law, and the Hansetag issued ordinances that governed the form of the bill, the rights of the parties, and the resolution of disputes. The bill of exchange was also governed by the law of the place where it was drawn or paid, and the courts of the Hanseatic cities had to apply the different laws as required.

The warehouse receipt and the bill of lading

The warehouse receipt and the bill of lading were the other two principal instruments of credit used by the League’s merchants. The warehouse receipt was a document issued by a warehouse keeper certifying that a merchant had stored a particular quantity of a particular good in the warehouse. The warehouse receipt was, in effect, a negotiable instrument: the holder of the receipt could claim the goods, and the receipt could be used as collateral for a loan.

The bill of lading was a document issued by a shipper certifying that a particular quantity of a particular good had been loaded on a particular ship for transport to a particular destination. The bill of lading was, in effect, a document of title: the holder of the bill could claim the goods at the destination, and the bill could be transferred by endorsement. The bill of lading was an essential tool of the maritime trade, because it allowed a merchant to sell goods that were still in transit, and it allowed the buyer to obtain credit against goods that had not yet arrived.

The warehouse receipt and the bill of lading were regulated by Hanseatic law, and the Hansetag issued ordinances that governed the form of the documents, the rights of the parties, and the resolution of disputes. The documents were also governed by the law of the place where they were issued or presented, and the courts of the Hanseatic cities had to apply the different laws as required.

The moneylenders

The moneylenders of the Hanseatic cities were, in the late Middle Ages, among the most important sources of capital for the League’s long-distance trade. The moneylenders of Cologne were particularly famous, and the moneylenders of Lübeck, Hamburg, and Danzig were also important. The moneylenders were, in the first instance, members of the merchant class who had accumulated capital from the trade, and they used the capital to make loans to other merchants.

The moneylenders of the League charged interest on their loans, although the charging of interest was, in principle, forbidden by the Church. The interest was usually disguised as a discount on the bill of exchange or as a charge for the use of the money, and the Church’s prohibition was, in practice, widely ignored. The rates of interest varied, but they were typically in the range of 5 to 15 percent per year, and the rates were higher for riskier loans.

The moneylenders of the League also made loans to foreign merchants, and the loans were an important source of income for the League’s cities. The League’s moneylenders were particularly important in the financing of the English wool trade, and the loans made by Cologne moneylenders to the English crown were a major source of revenue for the Cologne merchant class.

The early banks

The early banks of the Hanseatic cities developed in the late Middle Ages out of the activities of the moneylenders. The earliest banks were, in the first instance, the tables of the money-changers, and the money-changers gradually expanded their activities to include the acceptance of deposits, the making of loans, and the transfer of money from one place to another. The earliest banks were located in the principal trading cities, and the most important were in Cologne, Lübeck, Hamburg, and Danzig.

The banks of the Hanseatic cities were, by the standards of the time, sophisticated institutions. They kept careful records of their transactions, they used double-entry bookkeeping, and they developed a system of clearing that allowed the banks to settle their mutual debts without the physical transfer of money. The banks were also subject to regulation by the city councils and the guilds, and the Hansetag issued ordinances that governed the conduct of the banks and the protection of the depositors.

The banks of the Hanseatic cities were, however, still relatively small institutions, and they were unable to provide the capital for the great ventures of the late Middle Ages. The great ventures, like the voyages of discovery and the establishment of the trading companies, were financed by the great merchant families or by the joint-stock companies that were just beginning to emerge. The banks of the Hanseatic cities were, however, important sources of credit for the ordinary merchants, and they played a key role in the development of the modern banking system.

The decline of the credit system

The credit system of the League began to decline in the late fifteenth century, as the League’s commercial position itself began to decline. The great merchant families, which had been the principal source of capital for the long-distance trade, gradually withdrew from the trade, and their capital was invested in land, in offices, and in the new trading companies of the Atlantic. The banks of the Hanseatic cities, which had been important sources of credit, gradually declined in importance, and they were eventually eclipsed by the banks of Amsterdam, London, and Hamburg.

A specific note on the 1550s Lübeck bank failures: the failure of several Lübeck banks in the 1550s (the Lübecker Bankrott) is one of the most concrete markers of the League’s commercial decline. The great patrician families of the 14th and 15th centuries had become rentiers, and the capital they had withdrawn from the trade was not replaced by the new banking ventures of the 16th century. The result was a credit crunch that accelerated the League’s loss of position in the Baltic.

The decline of the credit system is treated at greater length in the article on the decline and the article on the last years.