453. Financial Deals that Shaped the World feat. Paolo Zannoni

How was the financial world changed by the structured use of wooden sticks with dents in them? Why did silver coins disappear from England as soon as they were minted? How did one country that aimed to eliminate money ultimately end up creating the most stable currency in Europe?

Paolo Zannoni is  Executive Deputy Chairman at Prada, and the author of the book Money and Promises: Seven Deals That Changed the World. 

Greg and Paolo discuss Paolo’s career choices between academia and banking, his research into the history of financial systems, and the key historical figures and places that have shaped modern banking practices. They also delve into the importance of trust in finance, the transparency of early banking methods, and the pivotal role Italy played in the origin of modern banking.

Zanoni and Greg discuss the significance of historical financial transactions and their transparency, comparing them to present-day financial technologies like blockchain. They also cover the interesting evolution of financial instruments such as the bill of exchange, public finance systems, and the impacts of these systems on the state and society.

*unSILOed Podcast is produced by University FM.*

Episode Quotes:

Common debt before common currency

34:07: It was cheaper issuing debt in Écu than issuing debt in your own national currency. That was the beginning of the common currency and could have been the beginning of the common debt. But the first part went fast, reasonably fast, and reasonably far. The second did not take off. And that shows the areas in which the Continental Congress of the United States was much superior to the EU. The Continental Congress of the United States had common public debt because before having a common currency. That I found is so marvelous, so innovative, and so great. They did not have a common currency, but they had common debt.

When banks fail, they turn to financial history

45:55: When banks go bad, they start confronting that particular crisis of the past, and depending on how good the financial history is, they go back in time. 

How an orderly banking system preserved centuries of financial history

27:44: Bank debt was a combination between a registered IOU and a banknote. And so when the bank was making promises, they were issuing these pledges of credit, but the pledges of credit afterward, to be deposited in a bank account, had to be entered into a special ledger by bank employees. And when that ledger, when that pledge of credit was entered into the ledger, was returned, all hundreds of years of pledges of credit are neatly stacked on the shelves. That's how you can find how much Caravaggio was paid for his painting. Isn't it amazing? With enough time and knowledge, you can find almost every big transaction.

On Venice's early banking transparency

09:49: They had two features. The first one was that they were public, and banking was transacted. The banker opened up his ledger, and the two parties, maybe not at the same time, appeared in front of him. And the second was that the government was checking those ledgers. I mean, Venice had magistrates that were required to supervise the ledgers of the bank. At the ledgers of the bankers, and they did supervise the ledger of the bankers, and the only place where you find those ledgers today are in the part of the archives that comes from those magistrates and from the senate.

Show Links:

Recommended Resources:

• Luca Pacioli
• Fibonacci
• Liber Abaci
• Philip II of Spain
• Tally stick
• Écu
• Ferdinando Galiani - Wikipedia
• Alexander Hamilton
• Rudolf Hilferding
• Gresham's law
• unSILOed - William Goetzmann - How Finance Made Civilization Possible
• Bernardo Davanzati
• Polymath

Guest Profile:

• Board of Directors page for Prada

His Work:

• Book - Money and Promises: Seven Deals That Changed the World
• Article - Fortune - The government using taxpayer money to bail out banks will unavoidably continue. Here’s why