Banking

Banking in the 17th and 18th centuries

In the early years of the 17th century, the municipal authorities of Amsterdam, being aware that commercial activity there was being hampered by the uncertainties created by the circulaton of coins of various currencies and differing quality, decided to take action. As a corrective they founded the "Wisselbank" in 1609, , and required it to maintain a high level of stability by maintaining its reserves of coins and precious metals at a level close to 100 per centof its deposits. It operated mainly as a service to merchants who were trading in different currencies and it did not make loans to the public. Its main contribution to banking innovation was a system of transfers by cheques and direct debits that was similar to the system in use in the 21st century. The Wisselbank had some of the characterestics of a modern central bank, and it inaugurated a five-hundred-year period of participation in, and regulation of banks by public authorities. However, the claim to have been the world's first central bank is made by the Swedish Riksbank which was inaugurated 1668 as the successor to John Palmstruch's "Stockholm Banco". It was nominally a private bank, but the King of Sweden appointed its management, and regulated its operations. Unlike the Wisselbank, it issued loans and maintained reserves at only a fraction of its deposits. Its main contribution to banking innovation was the issue the first modern banknotes, which were interest-free bills of exchange, denominated in specific amounts and - in principal - corresponding in total value to money deposited in the bank. It was in due course to be formally recognised as a public bank with a statutory monopoly of the issue of banknotes . The Bank of England was created as a private bank in 1694, mainly in order to raise money for the government of the day (by converting some of its debt to shares in the bank and in 1709 it was granted a partial monopoly in the issue of banknotes