Stockholms Banco
Encyclopedia
Stockholms Banco in Sweden
was the first European bank to print banknote
s. The bank was founded in 1657 by Johan Palmstruch
and began printing banknotes in 1661. It was to be the precursor to the Sveriges Riksbank
, the central bank of Sweden.
had made two failed proposals for the creation of a banking institution in the 1650s before his third proposal, with the addition of a promise to pay half of the bank's profits to the crown, was accepted. King Charles X Gustav
thus signed two charters on November 30, 1656 to create an exchange bank and a loans bank. The first of these (which opened in July 1657) took deposits for a fee (and accruing no interest) with the account owner later able to withdraw the money as cash or to write cheques. The second (which opened at the beginning of 1659) provided loans, financed by the bank owners and secured against property. These two departments were combined in Stockholms Banko with Palmstruch as general manager.
The bank itself was no great innovation as it was simply an imitation of the large and successful banks in Amsterdam
and Hamburg
that had been founded earlier in the 17th century, but it was hoped that the bank would help to stabilise Sweden's currency. Sweden at that time did not have a single currency, rather there was one daler minted in copper
(kopparmynt) and another minted in silver
(silvermynt). As the metal content of a copper daler had to be worth as much as that of a silver one, this meant that copper daler were large and heavy plate-sized coins. In practice, however, the silver daler was worth more and these were often hoarded, so generally only these large kopparmynt daler were commonly available.
Palmstruch's first major innovation in combining these two departments was to use the money deposited by account holders to finance the loans rather than requiring capital to be provided by himself or the other bank owners. This soon became a problem, however, as deposits were usually short-term and the loans long-term, meaning that deposited money was unavailable to be withdrawn by account holders. This problem was rendered more acute when the copper content of the coins was lowered 17% in 1660 as account holders demanded the return of the copper daler they had deposited since they were now worth more as metal than as coins. It was impossible for the bank to fulfil these requests as the money had been paid out as loans.
s as a solution to the bank's problems balancing deposits and loans. To cover the amounts requested by the account holders, in 1661 he began to make out credit notes (Kreditivsedlar) in round denominations which were freely transferable and backed by the promise of future payment in metal. These were the first European banknotes.
These banknotes became very popular very quickly simply because they were much easier to carry than the large copper daler, especially for making large payments (a note could be sent in an envelope - previously the large coins had to be transported by horse and cart). A further reason was that when the amount of copper in the coins was reduced the old coins were taken out of circulation faster than new ones could be minted, meaning that there was a shortage of money which could only be solved by replacing the coins with banknotes.
When people returned to the bank to have their credit notes honoured, the bank did not have enough metal reserved to fulfil all these requests and from October onwards the bank was increasing obliged to refuse with operations ceasing entirely in 1664. The government and Riksdag (Swedish Parliament) were forced to take over, reducing the outstanding loans and exchanging the notes for coins. The liquidation of the bank was completed in 1667 and Palmstruch was imprisoned, blamed with the bank's losses.
On September 17, 1668, Palmstruch's privilege to operate a bank was transferred to the Riksens Ständers Bank, operated by the parliament. Due to the failure of Stockholms Banco, this new bank was not permitted to issue banknotes until the 18th century. The Riksens Ständers Bank was later renamed Sveriges Riksbank
and remains the central bank of Sweden to this day.
A second series of these banknotes, known as Palmstruchare, was issued in 1666 in denominations of 10, 25, 50 and 100 silver daler (silvermynt).
Sweden
Sweden , officially the Kingdom of Sweden , is a Nordic country on the Scandinavian Peninsula in Northern Europe. Sweden borders with Norway and Finland and is connected to Denmark by a bridge-tunnel across the Öresund....
was the first European bank to print banknote
Banknote
A banknote is a kind of negotiable instrument, a promissory note made by a bank payable to the bearer on demand, used as money, and in many jurisdictions is legal tender. In addition to coins, banknotes make up the cash or bearer forms of all modern fiat money...
s. The bank was founded in 1657 by Johan Palmstruch
Johan Palmstruch
Johan Palmstruch was a Dutch merchant credited with the introduction of paper money to Europe. He became a commissioner in the National Board of Trade after his arrival in Sweden in 1647 and began submitting proposals for banking institutions to King Charles X Gustav in the 1650s...
and began printing banknotes in 1661. It was to be the precursor to the Sveriges Riksbank
Sveriges Riksbank
Sveriges Riksbank, or simply Riksbanken, is the central bank of Sweden and the world's oldest central bank. It is sometimes called the Swedish National Bank or the Bank of Sweden .-History:...
, the central bank of Sweden.
The founding of Stockholms Banco
Johan PalmstruchJohan Palmstruch
Johan Palmstruch was a Dutch merchant credited with the introduction of paper money to Europe. He became a commissioner in the National Board of Trade after his arrival in Sweden in 1647 and began submitting proposals for banking institutions to King Charles X Gustav in the 1650s...
had made two failed proposals for the creation of a banking institution in the 1650s before his third proposal, with the addition of a promise to pay half of the bank's profits to the crown, was accepted. King Charles X Gustav
Charles X Gustav of Sweden
Charles X Gustav also Carl Gustav, was King of Sweden from 1654 until his death. He was the son of John Casimir, Count Palatine of Zweibrücken-Kleeburg and Catherine of Sweden. After his father's death he also succeeded him as Pfalzgraf. He was married to Hedwig Eleonora of Holstein-Gottorp, who...
thus signed two charters on November 30, 1656 to create an exchange bank and a loans bank. The first of these (which opened in July 1657) took deposits for a fee (and accruing no interest) with the account owner later able to withdraw the money as cash or to write cheques. The second (which opened at the beginning of 1659) provided loans, financed by the bank owners and secured against property. These two departments were combined in Stockholms Banko with Palmstruch as general manager.
The bank itself was no great innovation as it was simply an imitation of the large and successful banks in Amsterdam
Amsterdam
Amsterdam is the largest city and the capital of the Netherlands. The current position of Amsterdam as capital city of the Kingdom of the Netherlands is governed by the constitution of August 24, 1815 and its successors. Amsterdam has a population of 783,364 within city limits, an urban population...
and Hamburg
Hamburg
-History:The first historic name for the city was, according to Claudius Ptolemy's reports, Treva.But the city takes its modern name, Hamburg, from the first permanent building on the site, a castle whose construction was ordered by the Emperor Charlemagne in AD 808...
that had been founded earlier in the 17th century, but it was hoped that the bank would help to stabilise Sweden's currency. Sweden at that time did not have a single currency, rather there was one daler minted in copper
Copper
Copper is a chemical element with the symbol Cu and atomic number 29. It is a ductile metal with very high thermal and electrical conductivity. Pure copper is soft and malleable; an exposed surface has a reddish-orange tarnish...
(kopparmynt) and another minted in silver
Silver
Silver is a metallic chemical element with the chemical symbol Ag and atomic number 47. A soft, white, lustrous transition metal, it has the highest electrical conductivity of any element and the highest thermal conductivity of any metal...
(silvermynt). As the metal content of a copper daler had to be worth as much as that of a silver one, this meant that copper daler were large and heavy plate-sized coins. In practice, however, the silver daler was worth more and these were often hoarded, so generally only these large kopparmynt daler were commonly available.
Palmstruch's first major innovation in combining these two departments was to use the money deposited by account holders to finance the loans rather than requiring capital to be provided by himself or the other bank owners. This soon became a problem, however, as deposits were usually short-term and the loans long-term, meaning that deposited money was unavailable to be withdrawn by account holders. This problem was rendered more acute when the copper content of the coins was lowered 17% in 1660 as account holders demanded the return of the copper daler they had deposited since they were now worth more as metal than as coins. It was impossible for the bank to fulfil these requests as the money had been paid out as loans.
Kreditivsedlar - Europe's first banknotes
Palmstruch's second major innovation was the introduction of paper banknoteBanknote
A banknote is a kind of negotiable instrument, a promissory note made by a bank payable to the bearer on demand, used as money, and in many jurisdictions is legal tender. In addition to coins, banknotes make up the cash or bearer forms of all modern fiat money...
s as a solution to the bank's problems balancing deposits and loans. To cover the amounts requested by the account holders, in 1661 he began to make out credit notes (Kreditivsedlar) in round denominations which were freely transferable and backed by the promise of future payment in metal. These were the first European banknotes.
These banknotes became very popular very quickly simply because they were much easier to carry than the large copper daler, especially for making large payments (a note could be sent in an envelope - previously the large coins had to be transported by horse and cart). A further reason was that when the amount of copper in the coins was reduced the old coins were taken out of circulation faster than new ones could be minted, meaning that there was a shortage of money which could only be solved by replacing the coins with banknotes.
The fall of the bank
The invention of banknotes by Palmstruch eventually caused more problems than it solved. The bank was able to print banknotes on a seemingly unlimited scale and as lending rose rapidly in 1663, the bank's loans ceased to be dependent on the deposits of other account holders. By autumn of that year loans and note issues had reached such levels that the value of the banknotes began to fall.When people returned to the bank to have their credit notes honoured, the bank did not have enough metal reserved to fulfil all these requests and from October onwards the bank was increasing obliged to refuse with operations ceasing entirely in 1664. The government and Riksdag (Swedish Parliament) were forced to take over, reducing the outstanding loans and exchanging the notes for coins. The liquidation of the bank was completed in 1667 and Palmstruch was imprisoned, blamed with the bank's losses.
On September 17, 1668, Palmstruch's privilege to operate a bank was transferred to the Riksens Ständers Bank, operated by the parliament. Due to the failure of Stockholms Banco, this new bank was not permitted to issue banknotes until the 18th century. The Riksens Ständers Bank was later renamed Sveriges Riksbank
Sveriges Riksbank
Sveriges Riksbank, or simply Riksbanken, is the central bank of Sweden and the world's oldest central bank. It is sometimes called the Swedish National Bank or the Bank of Sweden .-History:...
and remains the central bank of Sweden to this day.
Palmstruch's banknotes
The first banknotes, issued in 1661, were all signed by Palmstruch himself as well as by the other clerks of the bank. These were issued in denominations of 5, 25, 100 and 1000 copper daler (kopparmynt).A second series of these banknotes, known as Palmstruchare, was issued in 1666 in denominations of 10, 25, 50 and 100 silver daler (silvermynt).