Lives and Livelihoods

Each of these requirements is specific, so that essentially the bill of exchange is a simple document. Its importance, however, lies in the fact that in most countries it may, by a simple legal process known as “protest”, be established as proof of debt and the basis for accelerated legal recourse against a buyer who defaults on payment.

For centuries after its initial development by the earliest colonizing countries, trade was conducted first on a barter and then on a cash and-carry basis. Credit and finance did not enter the picture, apart from the domestic borrowing that might be needed to finance a trading venture. During the first half of the nine teenth century, however, the development of specialized banking techniques (particularly those of the so-called “merchant” bankers in London) together with the simultaneous development of organized marine insurance, provided the impetus for an extraordinary increase in international trade. The financing medium used by these merchant banks – the principals of which were merchants as well as bankers – was the bill of exchange in the from in which we use it today.

Most international settlements of that period were made on the basis of pounds sterling and the “bill of London” became a world – wide medium of settlement for trade debts. The Argentinian seller of merchandise destined for an English buyer, for instance, would draw a bill on the buyer, payable on the expected date of arrival of the goods in an English port. On shipment, the  seller would hand the bill with documents of title to the goods to his local bank, usually agents or corre agent of a British banking house, who would discount the bill or advance cash against it. The bank would then forward the documents, usually by the carrying vessels, to its correspondent bank in London. They in turn would present the bill to the buyer for payment, against delivery of the documents that would enable him to claim the goods from the vessel. By this procedure the sellers obtained a measure of security not previously available to them, in addition to the use of the amount involved from the time of shipment.