This is the next Diplomatic Policy in the game and a very efficient way to make extra Gold. It grants +1 for each Envoy you have, regardless of your status with a particular city-state - you can even be at war with it, and you'll still receive the Gold! At the time it becomes available, you should have 10+ Envoys, and possibly many more (if you went with the right Policies); towards the end of the game you can reasonably expect more than 40 Gold out of this Policy.
The only problem with Merchant Confederation is the problem with all Diplomatic Policies: you usually have only a single designated slot for them in your government. (The only ones with 2 Diplomatic slots are Democracy and Digital Democracy, which aren't available until late in the game.) So to use Merchant Confederation, you will have to give up the use of, say, a useful "permanent" Policy such as Charismatic Leader or Machiavellianism. And while there are many other ways to earn extra Gold, finding other ways to earn the bonuses which these two will give you is very difficult.
More commonly referred to as a commercial league, a merchant confederation was created to protect the economic interests and diplomatic privileges of merchants in cities and kingdoms along trade routes. Although such confederations rarely had official standing, several – such as the Company of Merchant Adventurers of London (founded in 1407 AD) and the even more powerful Hanseatic League (formed c. 1356) – had enormous influence. These, and others, could dominate the trade in a specific commodity or across a specific region for lengthy periods. These merchant confederations would reach their peak during the 15th and 16th centuries, but rapidly decline afterward.