The Design of Debt-Clearing Markets: Clearinghouse Mechanisms in Preindustrial Europe

Abstract

We examine the evolution of the decentralized clearinghouse mechanisms that were in use throughout Europe from the thirteenth century to the eighteenth century; in particular, we explore the clearing of nontradable or limited-tradable debts such as bills of exchange. We construct a theoretical model of these clearinghouse mechanisms and show that the specific decentralized multilateral clearing algorithms known as rescontre , skontrieren , or virement des parties , used by merchants in this period, were efficient in specific historical contexts. Our analysis contributes to the understanding of these mechanisms during late medieval and early modern fairs and their robustness during the seventeenth and eighteenth centuries.