Voyages and the first shares · 1100s–1600s
1397
The Medici Bank and the price of borrowing
Florence's Medici lend across Europe against pledged goods, working around the ban on interest.
The Medici Bank opened in Florence in 1397 and grew branches from London to Rome. It moved money with bills of exchange and lent to merchants and rulers, often against pledged goods or jewels.
The Church banned usury, charging interest on a loan, so bankers built their reward into the exchange rate between currencies. Interest itself is far older: the Code of Hammurabi, around 1750 BC, already capped rates on loans of grain and silver.
💡 Why it made sense then
Trade over long distances needed credit, and lenders needed a reward for waiting and a way to get repaid if the borrower couldn't pay.
Ideas it gave us
- 🏦 Interest rate
An interest rate is the price of borrowing money, stated as a percentage of the loan per year. For savers it is the reward for lending their money to a bank.
- 🏦 Collateral
Collateral is an asset a borrower pledges to a lender, which the lender can take or sell if the loan isn't repaid.
Practise with $10,000 in play money
Free. No real money involved.