The scarcity of metal money was a recurrent phenomenon in Colonial Spanish America. This situation led to the spontaneous creation of a credit system that made possible to compensate the lack of liquidity and to increase the cash flow (Martínez, 2001). In this way, sufficient resources were raised to finance personal and commercial projects.

It is possible to identify two types of lending operations in the colonial system: monetary credit and the so-called fiado (sales on credit).

The first category refers to pure lending operations, with a long-term horizon, in which the debtor takes money to perform a later action. For its part, the second category not only implies the granting of credit but also the sale of goods, and its time horizon is the short-term (Gelman, 1990).

As for the credit providers, they were those groups that had greater access to the currency: the Catholic Church and merchants. The religious institution managed to concentrate a large amount of cash, thanks to the donations of its faithful, alms and pious foundations. Their strategy was to obtain an income that would allow them to sustain themselves economically without consuming all the available capital, hence they would think of long-term investments as the acquisition of real estate, leased or delivered through censo enfitéutico, and loans of money, represented in censos consignativos.

Current Prices on popular forms of Silver Bullion

The censo enfitéutico consisted of to cede for a long period the useful domain of a property in exchange for an annual payment. (Martínez, 2001). The censo consignativo was a very long-term loan. In the transaction, the creditor delivered a sum of money to the debtor; this mortgaged a real estate and did not determine a date for its return, which was open and at the mercy of the debtor, who pledged to pay revenues until he had redeemed the principal. By its characteristics, the censo consignativo was presented as an attractive mechanism for sectors that owned a capital and that looked for to obtain an income of the same (Ferreira, 1996).

Throughout the colonial period, the Church consolidated as the main source of monetary credit, which allowed the long-term financing of activities such as agriculture and mining.

The merchants’ strategy was to get cash at a low price to buy goods on advantageous terms, which were then marketed in Spanish territories at a higher price, fact that allowed them to make a profit. This group dominated the provision of fiados (sales on credit), that consisted of an agreement in which the buyer of merchants´ products undertook to make the payment within a pre-established period, generally, less than 90 days. By working in short term, merchants´ liquidity margins were never compromised.

Official history tends to overestimate the role of the Church. Even authors such as Arnold Bauer do not hesitate to give it the nickname “bank of the colony”. However, as we have seen, the institution only dominated the provision of long-term credit, in the short-term the merchants took the lead. The historian Rosemarie Terán (1991) is categorical in affirming that at no time did the State stimulate the apparition of any credit mechanism. Everything was the work of the free-market.

In their account of bank evolution, American economists Lawrence White and George Selgin state that the loans are originally made from the personal wealth and income of the lender. Indeed, this happened both with the Church and with the merchants, who in the words of White and Selgin, would act as “primitive bankers.” On the other hand, lending capacity is based on two important facts: the fungibility of money and the law of large numbers. The latter made sense in the case of the Church, who came to knead such a wealth of money that ensured a continuous supply of loanable funds.

The Church and merchants were the only ones who had capital to channel it to civil society well into the nineteenth century.

Referencies

Ferreira, C. (1996). La iglesia y el crédito colonial: Pamplona-Nueva Granada, 1700-1760. Innovar: Revista de Ciencias Administrativas y Sociales, 6 (7), pp. 98-112.  

Gelman, J. (1990). Venta al contado, venta a crédito y crédito monetario en América colonial: acerca de un gran comerciante del virreinato del Río de la Plata.  Anuario de Historia de América Latina, 27 (1), pp. 101–126.

Martínez, M. (2001). La génesis del crédito colonial. Ciudad de México, siglo XVI. México: Universidad Nacional Autónoma de México, Instituto de Investigaciones Históricas.

Terán, M. (1991). Censos, capellanías y élites: aspectos sociales del crédito en el Quito colonial. Procesos, (1), pp. 40-56.