Proposal preview

Multiple payment systems in globalizing economies

Economists and economic historians are discovering the workings of multiple payment systems that consist of formal as well as informal instruments and methods of payment. Individuals and businesses in the past often relied on informal payment systems even though there was no shortage of cash, credit, or banks. Informal payment systems developed to reflect local circumstances and hence were deeply embedded in economic, social, and cultural considerations. The consensus amongst economic historians is that the role of such informal payment systems was only supplementary or subsidiary to formal payment systems consisting of banks. When local economies connected to world trade from the nineteenth century onwards, only a marginal role remained for informal payment systems.

This view on financial history has recently been challenged, however, by studies of Asian and African economies. These showed that communities continued to rely on indigenous informal payment systems long after the introduction of European or colonial banking systems. They also showed that in many regions indigenous informal methods and formal banking organizations formed multiple payment systems. Importantly, the survival of many local economies relied on the continued working of informal payment systems that offered shelter from the waves of globalization. Development economists have shown similar findings for present-day developing economies.

Although economic historians are starting to better understand informal payment systems and their interplay with formal payment systems, our understanding of the vital role of informal payment systems in economic development remains limited. There has been little empirical research documenting the importance of multiple payment systems as local communities connected to the globalizing world economy. Insight about the role of large merchants or proto-bankers, who provided a buffer to communities by intermediating between informal and formal payment methods, remains even more limited.

This session draws on cases from Asia (India, Japan, Java), Africa (Senegal), and Europe (England, Italy, the Netherlands, Wales) to unravel the importance of multiple payment systems for economic development from a global, historical perspective. To learn from the similarities and differences of these examples, each case is analyzed with a set of identical questions. These include: To what extent were formal and informal payment systems complementary? Would formal payment systems such as banks have achieved their dominant position in local economies in the absence of well-functioning informal payment systems? Did informal payment systems offer a stable social and economic base to communities drawn into the world economy?

The session includes the following scholars and papers:
1. Masato Shizume, ‘Commodity flows and the payment system in Japan during the Edo Era’.
2. Takeshi Nishimura, ‘The transformation of informal payment systems under the modern banking system in the British India during the 1920s and 1930s’.
3. Toyomu Masaki, ‘Credibility, Transaction Cost and the Number of Money in an Economic sphere: A view from hard work transitions from multiple to a single currency in West Africa’.
4. Kaoru Sugihara, Local and Regional Payment Methods and the Growth of World Trade in the Long Nineteenth Century.
5. Alberto Feenstra, ‘On India’s demand. Asian agency in the VOC’s response to local currency preferences in eighteenth-century Java’.
6. Mauro Carboni, ‘Strapped for cash: providing credit at the lower end of the market in pre-modern Italy’.
7. Mina Ishizu, ‘A nexus of payment systems in industrialising Lancashire’.
8. Christiaan van Bochove, ‘Payment systems in The Netherlands during the pre-industrial period’.

Organizer(s)

  • Mina Ishizu London School of Economics mn.ishizu@googlemail.com
  • Takeshi Nishimura Kansai University tnishimu@kansai-u.ac.jp
  • Christiaan van Bochove Radboud University Nijmegen C.vanBochove@let.ru.nl

Session members

  • Alberto Feenstra, University of Amsterdam
  • Masato Shizume, Waseda University
  • Takeshi Nishimura, Kansai University
  • Christiaan van Bochove, Radboud University Nijmegen
  • Toyomu Masaki, Kanazawa University
  • Mina Ishizu, London School of Economics
  • Mauro Carboni, University of Bologna
  • Kaoru Sugihara, Research Institute for Humanity and Nature

Discussant(s)

  • Mark Metzler University of Washington mmetzler@uw.edu
  • Farley Grubb University of Delaware grubbf@udel.edu

Papers

Panel abstract

Although economic historians are starting to better understand informal payment systems and their interplay with formal payment systems, our understanding of the vital role of informal payment systems in economic development remains limited. This session draws on cases from Asia, Africa and Europe to unravel the workings and importance of multiple payment systems that consist of formal as well as informal instruments and methods of payment from a global, historical perspective. It argues that, as local communities connected to the globalizing world economy, many communities continued to rely on indigenous informal payment systems even though there was no shortage of cash, credit, or banks, and long after the introduction of European or colonial banking systems.

1st half

Commodity flows and the payment system in Japan during the Edo Era

Masato Shizume

The feudal lords of the Edo Period were required by law to rotate back and forth between Edo and their home territories every two years, and their families were required to live in Edo permanently. The lords collected taxes mainly in the form of rice and other agricultural commodities and sold substantial portions of those commodities to acquire cash to fund their households and activities in Edo and travels between Edo and home. Merchants in clan territories and Osaka were engaged in trade and finance for and with the clans. Using the archival documents of the Daimyo of the Maeda Clan who governed the Kaga Domain (now Ishikawa and Toyama Prefectures) through the Edo Period, this paper describes the financial activities of the clan government, including tax collection, the distribution and sales of tax commodities, and spending in Edo, at home, and on the road.

The feudal lords of the Edo Period were required by law to rotate back and forth between Edo and their home territories every two years, and their families were required to live in Edo permanently. The lords collected taxes mainly in the form of rice and other agricultural commodities and sold substantial portions of those commodities to acquire cash to fund their households and activities in Edo and travels between Edo and home. Merchants in clan territories and Osaka were engaged in trade and finance for and with the clans. Using the archival documents of the Daimyo of the Maeda Clan who governed the Kaga Domain (now Ishikawa and Toyama Prefectures) through the Edo Period, this paper describes the financial activities of the clan government, including tax collection, the distribution and sales of tax commodities, and spending in Edo, at home, and on the road.

The transformation of informal payment systems under the modern banking system in the British India during the 1920s and 1930s

Takeshi Nishimura

The Imperial Bank of India was established in 1921 and performed all normal functions which a commercial bank was expected to perform. In addition, in the absence of any central banking institutions in the British India until 1935, the Imperial Bank performed some functions which were normally carried out by a central bank. In this period, modern commercial banks were also established and these modern commercial banks contributed to various industrialization and commercialization in the British India in the 1920s and 1930s. However, primary sources recorded by Japanese cotton merchants who worked in the British India show that they paid money to rural merchants in accordance with the traditional payment rules. This paper tries to examine how informal payment systems were transformed and integrated under the modern banking institutions in the 1920s and 1930s using primary documents collected mainly by the Indian Office, Indian Government and Japanese cotton merchant.

The Imperial Bank of India was established in 1921 and performed all normal functions which a commercial bank was expected to perform. In addition, in the absence of any central banking institutions in the British India until 1935, the Imperial Bank performed some functions which were normally carried out by a central bank. In this period, modern commercial banks were also established and these modern commercial banks contributed to various industrialization and commercialization in the British India in the 1920s and 1930s. However, primary sources recorded by Japanese cotton merchants who worked in the British India show that they paid money to rural merchants in accordance with the traditional payment rules. This paper tries to examine how informal payment systems were transformed and integrated under the modern banking institutions in the 1920s and 1930s using primary documents collected mainly by the Indian Office, Indian Government and Japanese cotton merchant.

Credibility, Transaction Cost, and the Number of Money in an Economic Sphere: A view of hard work transitions from multiple to single currency in West Africa

Toyomu Masaki

West Africa is one of the few regions which was required to consider changing its principal means of payment very frequently over about one century to the present. First of all, commodity money was used. Next, paper money was introduced by colonial masters. However, Africans were slow to accept it as a means of payment. Apparently, it failed to provide credibility. After their political independences, some countries launched their national money, but others decided to choose a regime similar to that in the colonial era and to share a common currency. Finally, in 2000, a new plan to launch a single currency for a whole region was announced. On the other hand, cryptocurrency is now receiving attention. This paper tries to examine the conditions how people choose a/multiple means of payment in an economic sphere from a balance between credibility and transaction cost through an evolution of money in West...

West Africa is one of the few regions which was required to consider changing its principal means of payment very frequently over about one century to the present. First of all, commodity money was used. Next, paper money was introduced by colonial masters. However, Africans were slow to accept it as a means of payment. Apparently, it failed to provide credibility. After their political independences, some countries launched their national money, but others decided to choose a regime similar to that in the colonial era and to share a common currency. Finally, in 2000, a new plan to launch a single currency for a whole region was announced. On the other hand, cryptocurrency is now receiving attention. This paper tries to examine the conditions how people choose a/multiple means of payment in an economic sphere from a balance between credibility and transaction cost through an evolution of money in West Africa.

Local and Regional Payment Methods and the Growth of World Trade in the Long Nineteenth Century

Kaoru Sugihara

In Local Suppliers of Credit in the Third World, 1750-1960 (Gareth Austin and Kaoru Sugihara eds. 1993), we suggested that a wide range of money-lenders and local and regional bankers operated both before and under the Western impact in Asia, Africa and Latin America, often competing and complementing Western metropolitan sources. Reflecting the more recent research, this panel examines the more local, more informal and more indigenous payment systems, which also existed under the Western impact, and asks if the presence of the multiple payment system, and its complementarity with the more formal institutions, were central to the process of global integration. It does so by comparing European and non-European experiences. This presentation offers some observations on these questions, mainly from the perspective of Asian trade and economic history. It discusses the significance of local and regional payment methods for the growth of world trade in the long nineteenth century.

In Local Suppliers of Credit in the Third World, 1750-1960 (Gareth Austin and Kaoru Sugihara eds. 1993), we suggested that a wide range of money-lenders and local and regional bankers operated both before and under the Western impact in Asia, Africa and Latin America, often competing and complementing Western metropolitan sources. Reflecting the more recent research, this panel examines the more local, more informal and more indigenous payment systems, which also existed under the Western impact, and asks if the presence of the multiple payment system, and its complementarity with the more formal institutions, were central to the process of global integration. It does so by comparing European and non-European experiences. This presentation offers some observations on these questions, mainly from the perspective of Asian trade and economic history. It discusses the significance of local and regional payment methods for the growth of world trade in the long nineteenth century.

2nd half

On India’s demand. Asian agency in the VOC’s response to local currency preferences in eighteenth-century Java

Alberto Feenstra

Recent revisionist historiography on the relation between the Great Divergence and colonialism has nuanced the direct negative impact of European presence on Asian decline. This weaker European power raises the question how they realised their objectives if not by force alone. This paper examines the Dutch East India Company (VOC) policy to acquire commodities in eighteenth-century Java. It adds monetary policies to the political instruments, such as monopolies and strategically alliances with local elites. The paper argues that the VOC responded to local preferences in currency in order to obtain the desired commodities for their trade. Consequently, the company’s connections to the world market returned unintended benefits for Java’s local producers by increasing the money supply in the form of specifically required currencies. This demand-driven policy by the VOC attributes agency to common Asians, which reinforces the revisionist argument that the Europeans had to adapt to the local circumstances to...

Recent revisionist historiography on the relation between the Great Divergence and colonialism has nuanced the direct negative impact of European presence on Asian decline. This weaker European power raises the question how they realised their objectives if not by force alone. This paper examines the Dutch East India Company (VOC) policy to acquire commodities in eighteenth-century Java. It adds monetary policies to the political instruments, such as monopolies and strategically alliances with local elites. The paper argues that the VOC responded to local preferences in currency in order to obtain the desired commodities for their trade. Consequently, the company’s connections to the world market returned unintended benefits for Java’s local producers by increasing the money supply in the form of specifically required currencies. This demand-driven policy by the VOC attributes agency to common Asians, which reinforces the revisionist argument that the Europeans had to adapt to the local circumstances to achieve their goals.

Strapped for cash: providing credit at the lower end of the market in pre-modern Italy

Mauro Carboni

Innovative credit practices pioneered in pre-modern Italian cities have traditionally received a great deal of attention. However most studies have dealt with transactions associated to commercial ventures. Yet credit played an important role in the life of large sectors of the urban population as well. Durable goods were valuable assets precisely because of their versatility. They were bought with an eye to the future and served as an alternative means of liquidity which greased the wheels in a wide spectrum of payment practices. Italian cities were precocious to introduce regulated “microcredit” agencies. This allowed cohorts of commoners to resort to credit in exchange for the pawning of objects and to do so at moderate charge. The pre-modern city of Bologna provide an excellent test case of how community based credit bodies were developed to assist financially disenfranchised borrowers, turning credit into a powerful tool to promote social stability and cohesiveness.

Innovative credit practices pioneered in pre-modern Italian cities have traditionally received a great deal of attention. However most studies have dealt with transactions associated to commercial ventures. Yet credit played an important role in the life of large sectors of the urban population as well. Durable goods were valuable assets precisely because of their versatility. They were bought with an eye to the future and served as an alternative means of liquidity which greased the wheels in a wide spectrum of payment practices. Italian cities were precocious to introduce regulated “microcredit” agencies. This allowed cohorts of commoners to resort to credit in exchange for the pawning of objects and to do so at moderate charge. The pre-modern city of Bologna provide an excellent test case of how community based credit bodies were developed to assist financially disenfranchised borrowers, turning credit into a powerful tool to promote social stability and cohesiveness.

A nexus of payment systems in industrialising Lancashire

Mina Ishizu

This paper examines the rise of different means of payment in Lancashire area of England during its industrialisation in response to rapid market expansion into the transatlantic economy. It considers what made the bills of exchange as preferred means of payment when they co-existed with more natural exchange medium especially legal currencies. It argues that the joint interaction of manufacturing and merchant firms in the commercial relationships provided the mechanism that allowed the bill of exchange to emerge as widely accepted money alongside legal currency. There is a possibility that this mechanism allowed the bill of exchange to be readily accepted by individuals and petty tradesmen who were beyond the immediate commercial network.

This paper examines the rise of different means of payment in Lancashire area of England during its industrialisation in response to rapid market expansion into the transatlantic economy. It considers what made the bills of exchange as preferred means of payment when they co-existed with more natural exchange medium especially legal currencies. It argues that the joint interaction of manufacturing and merchant firms in the commercial relationships provided the mechanism that allowed the bill of exchange to emerge as widely accepted money alongside legal currency. There is a possibility that this mechanism allowed the bill of exchange to be readily accepted by individuals and petty tradesmen who were beyond the immediate commercial network.

Payment systems in The Netherlands during the pre-industrial period

Christiaan van Bochove

Historians of pre-industrial Europe often focus on advanced financial instruments and intermediaries. Most people did not organize payments at the technological frontier (the best combinations of risks and costs), however, but relied on more mundane alternatives. Those operating at the frontier, moreover, often resorted to these too when frontier instruments and intermediaries were inconvenient or unavailable. The world of current accounts, checks, inland bills of exchange, and proto-bankers thus frequently interacted with the world of coins and those who carried them. This paper focuses on The Netherlands and analyzes the functioning, interaction, and complementarity of the worlds of coin (moved around the country by skippers) and non-coin. This reveals a refined use of frontier technologies and an association between payment instruments and intermediaries. It shows that financial development not solely hinged on shifting the technological frontier closer to the origin, but also much on moving people closer to the frontier.

Historians of pre-industrial Europe often focus on advanced financial instruments and intermediaries. Most people did not organize payments at the technological frontier (the best combinations of risks and costs), however, but relied on more mundane alternatives. Those operating at the frontier, moreover, often resorted to these too when frontier instruments and intermediaries were inconvenient or unavailable. The world of current accounts, checks, inland bills of exchange, and proto-bankers thus frequently interacted with the world of coins and those who carried them. This paper focuses on The Netherlands and analyzes the functioning, interaction, and complementarity of the worlds of coin (moved around the country by skippers) and non-coin. This reveals a refined use of frontier technologies and an association between payment instruments and intermediaries. It shows that financial development not solely hinged on shifting the technological frontier closer to the origin, but also much on moving people closer to the frontier.