exchange bank

Exchange banks were a type of European bank, prominent from the 16th century, primarily focused on foreign exchange and facilitating international trade. Unlike deposit banks, which also offered loans and integrated with domestic industries, exchange banks specialized in converting entrusted funds into "bank money"—a universally accepted currency for merchants. They charged a small fee for this service and did not require their own capital.1

These institutions were crucial for international payments, where one country's currency is exchanged for another's in a market to cover debts, investments, or other transactions. Governmental restrictions on these foreign exchange transactions are known as exchange control, typically managed by a central bank to maintain a favorable balance of payments. By the latter half of the 19th century, the role of specialized exchange banks had largely diminished.231