How might the use of money and credit have helped to increase trade in the middle ages?

Answer 1

This is a complicated question that involves a lot of history.

After the fall of the West Roman Empire, the monetary system of Western Europe collapsed. Many countries had no mints, and those that did had no recognized basis for their currency, because the coinage of the last centuries of the Roman Empire was often very irregular. This made trade dependent largely on barter, especially trade done at long distance. Dependence on barter is a very difficult thing for a merchant, because it means that he has to identify goods at each port that he can sell in another, and then he has to find someone who has such goods, and who is interested in trading for what he is offering.

Charlemagne improved the situation greatly by introducing a new standard of currency based on the silver denier, which was based on the old Roman denarius. This became a basis of currency all over the Carolingian Empire, and was concurrently taken up by King Offa of Mercia, making it a standard for the Anglo-Saxon kingdoms as well. This standard remained in effect for many centuries, and was recognizably in place long after the Middle Ages ended.

An established standard for currency and a good money supply means that a merchant can simply sell his goods and move money instead of something he takes in trade. By breaking down the transaction from a trade into a simple sale followed by a simple purchase, his work becomes far simpler.

With a monetary system based on fixed standards, it was possible to do long-distance transfers of money and establish credit. These systems remained in place, fostered by governments which wanted trade, creating rudimentary banking systems, and extended by such groups as the Knights Templar, who established a system of bank drafts and transfers so a person could deposit money in one place and withdraw it in another.

This increased trade. With an easier and more secure way of moving money came easier transfer of goods, and trade became increasingly important. When the Knights Templar were abolished, merchant families replaced them by establishing their own banking systems, and trade continued based on this new system.

Later, guilds and leagues of cities established by the guilds furthered trade more were able to used the banking system to improve security of transportation further and maintain the standards that had been produced.