Whatever your attitude towards Christianity, there’s one story from the New Testament that has everyone, believer or non-believer, on Jesus’ side. Matthew 21:12 tells the story of Jesus driving out the money changers from the Temple – and nobody sides with the money changers.
I thought about this the other day when my Visa card statement arrived, showing a whole lot of unexpected transaction charges added to my account from my 3 weeks’ holiday in France. At a time when exchange rates can be calculated and money transferred in the blink of an eye or the blink of a cursor, it seems hard to justify these additional costs. I’ll probably pay up though, since I never check the small print, and paperwork does my head in. More money than sense, really.
Mind you, some transaction costs are justifiable. I banked a cheque the other day from Bank of America, and watched in amazement as the teller put it in a envelope to post it back to America. Surely when even lawyers accept PDFs for some purposes, sending an actual cheque by registered letter to an actual bank on the other side of the Pacific is silly? I’ve received royalty cheques from New York that I’ve never bothered to cash, because the transaction cost would exceed the value of the cheque. This is why cheques have become obsolete.
When economic historians think about banks, they tend to think about savings and loans and rates of interest, but the cost of moving money around, either in real or virtual form, is another important aspect of banking. At times it was the most important aspect. The medieval church opposed the concept of usury – lending money at interest – so Christian bankers like the Medici in Florence got around the problem by charging a fee for moving money from one place to another or from one currency to another. These transaction costs were easier for the Church to accept. It helped, of course, to have a couple of Popes in the family.
Bankers like the Medici greased the wheels of international trade in early modern Europe, but as trade spread to other continents, the problem of moving money around became increasingly complicated for merchants, and transaction costs grew.
Even in the 19th century, moving money from place to place remained a problem, and a problem means cost. When the speculator Ben Boyd arrived in Sydney in 1842, according to legend he brought a stash of gold sovereigns with him buried in the ballast of his ship. It seems unlikely at this late date but it’s possible. Coins were certainly imported into New South Wales 30 years earlier, when Governor Macquarie ordered a shipment of Indian coins from Bengal, to reduce dependence on promissory notes. Coin shipments were a risky venture, subject to piracy or shipwreck, but even on a successful voyage it was dead money, unavailable for investment during the time taken for the voyage (roughly 3 months in Ben Boyd’s day).
The cost of exchange between currencies was high too. In a world without calculators, consider the clerical and scientific labour involved in calculating the correct rate of exchange between – say – a Spanish dollar, an Indian rupee, and an English threepence. All the coins were silver, but silver of different origin and purity, perhaps worn or clipped, and formed into coins not just of different weights, but belonging to quite different systems of weights and measures.
In October 1804, Governor King published a set of exchange rates for coins in New South Wales.
But determining the exchange rate by regulation is a bit like legislating to make π = 3. It might work for a while in a tiny community like Sydney, but sooner or later, someone will learn how to profit from the slight discrepancies in the regulated exchange rate.
Which is where shroffing comes in. I first came across this term reading the evidence that Walter Stevenson Davidson (subject of my biography) gave to a parliamentary committee in 1830. Walter explained how he sold opium illegally to the Chinese.
Nothing was more simple. The ship on board which opium was lay generally at Whampoa at that time, about [12?] miles from Canton; the parties who purchased opium of my house paid the money in Canton, and so soon as it was ascertained that the silver was good, which was done by shroffs I had for the purpose, they received an order on the officer to take the opium out of the ship…
So what is a shroff? According to the Oxford English Dictionary, it is
A banker or money-changer in the East; in the Far East, a native expert employed to detect bad coin.
During his 10 years in Macao, Walter dealt with a wide variety of currencies, at least those listed in King’s Proclamation and probably many more. Mastering those complexities took skill and effort and time. As he was in China, he probably used an abacus, or employed someone who did, but he still needed to pay specialist shroffs because of the complexity of the work, and they didn’t come cheap. The OED quotes an example of the use of ‘shroff’ from 1882,
I have heard of as much as fifty taels (about $70) being paid to an important Shroff-shop for such a transaction.
Somehow I don’t think Visa puts as much effort into every individual transaction.
Walter was a shrewd businessman. He went at a school that trained boys for a life in the counting house, and the counting house remained a part of his life. When he left China in 1821, he took a partnership in his cousin’s bank, Herries, Farquhar & Co. in London.
As it happens, this bank had pioneered another way of moving money from place to place. In the 18th century, its founder Sir Robert Herries invented travellers cheques. A traveller could leave a sum of money with the bank and receive cheques to take with him (it was nearly always him) on his travels. When he needed more money, he had a list of foreign banks that would give him money in return for a cheque countersigned in their presence. The various payments would be reconciled later, with Herries making a healthy profit on the deal. These travellers cheques were a great innovation, a relatively risk free way to carry money from place to place, and Herries Bank became the bank of choice for young aristocrats setting out on the Grand Tour, with more money than sense, willing to pay through the nose for convenience.
Like them, I’m willing to pay something for convenience. Transferring money was never simpler: punch a PIN into a hole in the wall at Charles de Gaulle airport, let the little bit of plastic talk to a computer somewhere or other, and euros slide out as if by magic. But travellers cheques eventually became obsolete, replaced by cheaper and more convenient systems of money transfer. Visa-card should watch its back.
Ref: John Booker, Travellers’ Money (1994)