Stockholms Banco was a Swedish bank established in 1657 by Johan Palmstruch, a Swedish merchant and financier. It is historically significant as the first European bank to issue banknotes (referred to as Kreditivsedlar or credit notes), pioneering the concept of paper money in the Western world. It is considered a direct precursor to the Sveriges Riksbank, the world's oldest central bank.
History and Establishment
Johan Palmstruch, having received a royal charter from King Charles X Gustav of Sweden in 1656, officially opened Stockholms Banco in 1657. The bank was initially a private venture but operated under royal supervision, aiming to facilitate trade and provide credit in a period when metal coinage (silver and copper) was cumbersome and often in short supply due to Sweden's vast copper production and large, heavy copper plåtmynt (plate money).
Innovation: Banknotes
The most revolutionary aspect of Stockholms Banco was its introduction of banknotes. While deposit and giro banks existed before, Palmstruch's bank began issuing "credit notes" in 1661. These notes were receipts for deposits of copper or silver plate money, which could be exchanged for metallic currency on demand. Initially, they were highly successful as they were much more convenient to use than the heavy plate money, facilitating transactions and stimulating the economy.
Collapse and Legacy
The success of the banknotes proved to be the bank's undoing. Encouraged by the initial public acceptance and the ease of issuing paper, Palmstruch began to issue more notes than the bank held in metallic reserves. This over-issuance of unbacked notes, combined with lending practices that were too generous and not sufficiently collateralized, led to a crisis of confidence. When people started demanding their deposits back in specie (metal), the bank could not meet the demand.
In 1668, Stockholms Banco collapsed, leading to Palmstruch's arrest and eventual conviction for irresponsible banking practices. The bank was subsequently dissolved.
Despite its failure, the concept of paper money had been introduced. The Swedish Parliament (Riksdag) immediately recognized the utility of paper currency but also the need for strict governmental control. In the very same year, 1668, the Riksens Ständers Bank (Bank of the Estates of the Realm) was founded, directly under the control of the Parliament. This new institution learned from Palmstruch's mistakes and eventually evolved into the Sveriges Riksbank, which continues to operate today as the central bank of Sweden, marking it as the world's oldest central bank.
See also
- Sveriges Riksbank
- History of money
- Banknote
- Central bank
References
- Schön, Lennart. An Economic History of Sweden. Routledge, 2012.
- Risberg, Arne. The World's Oldest Central Bank: A short account of the Riksbank's history. Sveriges Riksbank, 2006.
- Davies, Glyn. A History of Money: From Ancient Times to the Present Day. University of Wales Press, 2002.