The Bill of Exchange in the Hanseatic League
The bill of exchange was the most important instrument of credit used by the merchants of the Hanseatic League, and it was one of the principal innovations of the medieval commercial system. 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.
How it worked
The bill of exchange worked because of the network of agents and correspondents that the Hanseatic merchants had established across Europe. A merchant of Lübeck who wanted to make a payment in Bruges would draw a bill of exchange on a merchant in Bruges with whom he had a business relationship, and the bill would be presented to the drawee in Bruges. The drawee would pay the amount of the bill to the bearer, and the bill would be returned to the drawer for cancellation. The system worked because the merchants trusted one another, and the system was supported by the Hanseatic legal system, which enforced the obligations of the parties.
A Hanseatic instrument that spread to Europe
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 bill of exchange was, in the first instance, a Hanseatic instrument, but it gradually spread to other parts of Europe, and it became, in time, one of the most important instruments of the European commercial system. The bill of exchange was the principal inspiration for the modern banking system, and the bill of exchange is still used, in modified form, in international trade.