1 Giulio – Papal States

In 1704, the Papal States found themselves navigating a complex and strained monetary situation, deeply entangled in the wider European context of the War of the Spanish Succession (1701-1714). The conflict disrupted trade routes, increased military expenditures, and placed heavy fiscal pressure on Pope Clement XI’s administration. While officially neutral, the Papal States were strategically significant and often subject to the demands and occupations of rival armies, particularly from Austrian and French forces, which further drained local resources and destabilized the economy. This environment of political uncertainty and financial strain directly undermined confidence in the currency system.

The core of the monetary problem was a severe and chronic debasement of the circulating coinage. The primary silver coin, the giulio, and the larger scudo, had been progressively reduced in their precious metal content over the preceding decades to fund papal deficits. By 1704, this resulted in a confusing dual system: "old" coins of higher intrinsic value were hoarded or exported (following Gresham’s Law), while "new," debased coins of identical face value flooded the market, causing inflation and frustrating both daily commerce and larger transactions. Furthermore, a proliferation of different coinages from various Italian and European states circulated within the Papal borders, complicating trade and exchange.

Papal attempts at reform, including a brief recoinage under Pope Innocent XII in the 1690s, had provided only temporary relief. By 1704, Clement XI’s government faced the same intractable dilemma: the urgent need for revenue clashed with the necessity of maintaining a stable and trustworthy currency. Without a fundamental resolution to its fiscal woes—reliant on inconsistent taxes and sale of offices—the Papal States could not halt the debasement cycle. Consequently, the monetary situation remained fragile, characterized by unreliable coinage, rising prices, and economic anxiety among its subjects, reflecting the broader struggle of a temporal papal authority in a changing European power structure.