How did travelers exchange money before modern banks? Before banks, travelers had different ways of getting money at their destination. They could carry gold and silver; they could sell goods; they could swap coins; they could use a letter of credit, or they could use an early form of a traveler’s check.
These days, if we want to travel, we have numerous ways to get money when we have arrived. Many of us will either just pay with our credit cards or withdraw money from the ATMs at the destination. Or we might carry traveler’s checks that we can swap for money at the destination. Some of us might just buy the destination currency before we even leave our home countries. All of these methods rely on a money network. All of the banks need to be connected so that you can withdraw your money in a foreign country or buy that country’s currency in your home country. What happened before those networks existed? Well, first of all, we need to remember that far fewer people traveled than do today. The majority of people would have been born and died in the same area without going far from it. The people who did travel were usually trading, on pilgrimage, were soldiers, or were wealthy.
Some people who traveled, such as those without much wealth, probably did so without using a lot of money. They would have carried money or valuables that they needed, but then stayed with religious orders or friends and relatives to keep costs down. They might be given any money that they needed in the local currency.
Systems of banking have existed for a very long time, and some banking activities even predate the invention of coins. The systems were there, and they have slowly evolved over time. The most straightforward way of taking money to a foreign country was as silver or gold, or as things to trade. Before coins were invented, people could carry precious metals such as gold and silver. These were valuable in many societies, and travelers could exchange them for goods or local forms of payment. However, the metal had to be weighed and its purity established, which could make even a simple transaction complicated. They could also carry items to trade at the destination and use whatever they were paid to buy things in their destination. There are examples of merchants in Assyria and Anatolia carrying tin and textiles, which they sold for silver and gold. All of these accounts were kept on clay tablets, and we can still read them, 4,000 years later.
Later, once coins were invented, people could often use the coins from one area in another. Once coins were invented, travelers could sometimes use the coins of one country in another. Gold and silver coins were particularly useful because the metal itself had value. However, different coins contained different amounts of precious metal, and some were more widely trusted than others. Money changers became essential. They weighed and examined foreign coins, assessed their value, and exchanged them for local currency, usually charging a fee. There were people who made a job of exchanging foreign coins for local coins. They would test the purity of the coin and then exchange it for a fee. In ancient Greece, these people were called trapezitai, and in the Islamic world, they were called sarrafs. There is a famous scene in the Bible where Jesus casts the money changers out of the temple. And some coins people didn’t even need to exchange. Coins from a powerful place like Rome would have been accepted anywhere, which is why you can find Roman coins all over their empire.
Wealthy travelers could often depend on trusted merchants in different cities. There would be certain shops, or places, where they could go and receive goods or services on credit. These merchants recorded all of the debts and were paid at a later date. This system worked, but it was only in certain cities, and there was an element of trust. If the merchant didn’t know who you were or how wealthy you were, they might not give you the service you wanted for fear of never being paid. It evolved into a system called the letter of credit. A letter of credit is literally that. The traveler goes to their bank in their town and receives a letter of credit for, say, $200. They take that to the bank that has a relationship in their bank, say in Rome, and they can withdraw the sum on the letter. Or they can withdraw small amounts in different locations, and everything is kept track of on the letter. The bank obviously charges a fee for this service. Then the original bank either sends the money to the bank in Rome, or they send goods that can be sold in the local town and that money pays off the debt. Or, and this was more common, the bank in Rome then issues a letter that is drawn on the original bank by another traveler, evening out all of the debts.
This letter of credit gradually evolved into the modern traveler’s check, called a circular note in the beginning. A letter of credit only works if you can find the relevant merchant or the bank that has a relationship with your bank. A circular note could work through a network of agents across Europe. They were first created by a Scottish merchant called Robert Herries in 1769. You could buy a certain amount of circular notes and exchange them in many different places. This was a successful idea, and in 1891, American Express released the first modern traveler’s checks. And this is what I learned today.
Sources
https://en.wikipedia.org/wiki/Money_changer
https://en.wikipedia.org/wiki/Traveller%27s_cheque
Image By Pittigrilli – Own work, CC BY-SA 4.0, https://commons.wikimedia.org/w/index.php?curid=135733414