Respondentia: The alternative contract for global trade finance in the Early Modern period

From Firenze University Press Book: Alternative currencies. Commodities and services as exchange currencies in the monetarized economies of the 13th to 18th centuries

Alejandra Irigoin, LSE, London School of Economics, United Kingdom

Respondentia in the title is evocative of the name of the main thoroughfare in front of all European factories in eighteenth century Canton and that of the main promenade between East India Company’s Fort William and the Hoogly River in Calcutta at the time. To name such surroundings at the heart of European commerce in Asia with that of a contract is interesting and curious enough to merit a reflection on its role in the financial history of early modern global trade. Such central loci were not named after alleged superior and more efficient alternatives — in the canonical literature — like the bills of exchange. This paper argues that what explains its prevalence in financing long-distance trade was a basic characteristic of this contract across markets and nations until the 1800s, namely the specification of the monies in which the contract was settled, which made it perform better than other cashless alternatives. In an international trade lacking both a common standard for precious metals across markets and a cashless means of settlement, trade meant dealing with different monies and diverse means of payment. Thus, performing with «foreign money» added another risk to the better known mercantile and navigation hazards: a currency risk. Drawing mostly from references available in (admittedly a bit aged) historical literature on different trades, it is possible to look at the respondentia contract anew through the lens of monetary issues. This paper argues that respondentia granted certainty to the values expected in return of the capital or, more broadly, the future value of the trade. In so doing, it provided a mitigation of a currency risk in the longdistance trade of the period. It also allowed those who intermediated in it to reap the benefits of arbitrage profits This also justifies the persistence of respondentia contracts across markets and nations until the 1800s. The paper documents the use of the instrument in a variety of trades that Europeans and non-Europeans alike carried out outside Europe. The first section traces the global use of respondentia into the 1800s, and discusses the understanding of the instrument in a comparative assessment of the drivers of this mode of trade finance. The second delves into the nature of the premia and the determinants of its high rates. Roughly, it describes the trends across eighteenth-century global commerce; the third takes on the exchange character of the instrument looking into the monetary issues embedded in maritime trade that performed within a diverse monetary setting. It discusses the relative efficiency of the contract over cashless alternatives which boomed in Europe at that time. Some conclusions follow. Respondentia appears to be the most ubiquitous private contract for trade finance outside the chartered companies. The instrument was ‘widespread’ in the commerce of Europeans overseas where the use and circulation of bills took much longer to take roots (Prakash 2008). It had different names in different trades (correspondencia, cambio marítimo, riesgo marítimo o de mar in Spanish; risco or ganho de mar in Portuguese, risque or prêt à la grosse aventure in French, cambio marittimo in Italian, bordermerije or bomerie in Dutch and respondentia in English. It was widely used in the Mediterranean since Roman times, probably by the Phoenicians as well, and was particularly associated with the Genoese early intermediation of trade in Byzantium and the Levant (DeRoover 1969). It was similar to the muzarbat or the awak among Indian sarräfs (Haider 2019) or the nagegame of the Japanese trade with China before the sixteenth century (Oka 2001), so it is difficult to claim, conclusively, that respondentia had clear European roots. Yet, after 1600, it reached another global scale with European long-distance sailing. It spread from the Mediterranean to the three oceans and the China seas, at a time when the circulation of bills was evolving into a cashless system of payment at the core of Europe.

DOI: 10.36253/979–12–215–0347–0.30

Read Full Text: https://books.fupress.it/chapter/respondentia-the-alternative-contract-for-global-trade-finance-in-the-early-modern-period/14756