Contribution of the Medicis of Florence to International Banking
Florence sat on the center of the European renaissance of the 14th and 15th century. On top of that, the city was also the center of another great innovation and that was banking. At the center of that, the Medici family sat. The Medici family ran Florence for more than 400 years. At one point it supplied the church with four popes and two queens of Florence. Its power is linked to the family business (L’Allemagne and Bade-Mecklembourg 54). The family was among the Italian financiers in the 15th century and it made the most powerful financial institution in all of the 15th century Europe.
The Medici bank was set up in 1397 by the founder of the family business Giovanni Di Bicci de’ Medici in Rome before moving its headquarters to Florence. The bank served Europe for more than 400 years before its collapse. The Medici are attributed to the banking methods and techniques that are used in today’s banking. They advanced banking techniques like double entry, bill of exchange, book keeping and even book transfers. This techniques are applied even in the modern day banking. The bank like any other bank in the modern banking industry held deposits and gave out loans, changed money and most importantly conducted business abroad. The Medici bank was the most international bank of its time since it did most of its business abroad. The bank grew so strong until at one point they were appointed the banker of the Vatican. They also were put in charge of the papal finances during the Cosimo de’ Medici reign in the bank.
Most of the Medici bank landings were to royalty and to finance military operations or to finance the lavish princely lifestyle. The bank also was involved in trade and soon after being set up, it got into the wool and silk business. It grew fast in the business until it established a monopoly in alum a commodity that is vital to the textile industry. The Italian lenders could lend to the English sheep farmers in return for lower prices. This was a trick by the bank to bypass the church’s ban on charging interests (Padgett 125). The bank also preferred using foreign currency as it was possible to build a hidden interest while collecting the debt in another currency inform of the exchange rates. The bank also accepted bills of exchange with the same motive of making profit in another currency.
The Medici family bank is therefore recognized for its massive contribution to international banking. For instance, it is the oldest bank that effectively employed the techniques of double entry and book keeping. They also preferred doing business in an international perspective rather than a local perspective. Its trick of international money exchange is used in today’s bill of exchange but in a modernized version. This further proofs the contribution of the Medici family bank to international banking and international trade. Until its fall in 1478, the bank was the strongest in the whole of Europe and it had monopolized a number of businesses like in the textile industry (Padgett 125).
In conclusion, the Medici family bank is the father of the double entry and book keeping technique. Therefore it is the father of modern banking as double entry is the key in the modern banking. It also facilitated international banking techniques like money exchange and the bill of exchange a technique that is applied in the modern day banking industry. Other practices like international business are also witnessed in today’s banking as it was done by the Medici family. Therefore it is evident that the Medici family made great contribution to both international banking and international business as it is witnessed in today’s global banking and international trade.
Fazzini, Marco, et al. “A Modern Look at the Banco De’Medici: Governance and Accountability Systems.” The International Business & Economics Research Journal (Online) 15.6 (2016): 271. (Fazzini et al 271)
L’Allemagne Dynastique, Tome VI, and Bade-Mecklembourg Le. “House of Medici.” Ulwencreutz’s the Royal Families in Europe V (2013): 54.
Padgett, John F. “The Emergence of Corporate Merchant-Banks in Dugento Tuscany.” The emergence of organizations and markets (2012): 121-167.