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Take, for example, the late 18th century and pre-French Revolution. The American War of Independence (1775 - '83) and the Seven Years War (1754 - '63) were financially ruinous for Louis XVI's France, due to his knack of borrowing large sums of money to fund these wars, leading to greater expenditure than income, and therefore deficit.

How was money transferred in times like these? There was no such thing as digital transactions, and surely the sums of money would have been far too large to physically transfer. Could it be that when one borrowed money, it was more of a statement of 'we have this much money', so long as there was proof that those who borrowed it had the money to spare?

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Have you read "The Count of Monte Cristo"? The banking system of France is well described in examples. Highly recommended. In short, the main character, being enormously rich, didn't need to travel with his money, as bankers in every town were offering him credit with open hands, paying for all his expenses. Surely that had to be a good deal for them. Also they were giving written statements that such person has the credit at their bank. –  Darek Wędrychowski Mar 27 '13 at 11:44
    
You seem to be assuming "transferred between nations". You're also assuming that when a ruler borrows money that specie changes hands. Borrowing is about credit, not money. –  Mark C. Wallace Mar 27 '13 at 13:31
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Some accounts, such as military ones, could only be settled in specie.

In exchange for a note of hand, a banking house or network offers a more fluid form of cash. The note of hand is discounted: for every £100 of face value, only £85 are supplied. The note becomes due in a certain number of years. (Say 3 years). The bankers have to be paid in specie or another acceptable currency at the end of the period.

Sovereign default or dispossession of individual bankers wasn't unheard of by the way. Nor was direct extraction of specie from banks. Another form of extraction was forced ennoblement with the loan being "discharged" by noble title.

So bankers are concentrating and moving specie in exchange for discounted paper.

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Can you give examples of forced ennoblement? –  Felix Goldberg Mar 27 '13 at 6:21
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