Monday, July 30, 2012

Libor scandal is no match for its medieval precedent

A new study of the foreign-exchange market in the Middle Ages, conducted by the University of Reading’s ICMA Centre, has documented a medieval system of exchange-rate manipulation similar to today’s.

That system also led to public outcry, a parliamentary investigation and the impeachment of a famous financier.

A major aim of financial innovation throughout history has been to circumvent regulations and restrictions placed on the industry. In the Middle Ages, an important obstacle was the religious disapproval of usury -- the charging of interest or “making money from money.” Dante condemned the usurer to the lowest level of the seventh circle of Hell. To avoid the “taint of usury,” medieval financiers developed various methods of disguising interest within other transactions.

Click here to read this article from Futures