Central Banking before 1800

Abstract

During the 20th century, a view established itself, according to which (a) defining central banking would be difficult, (b) the Sveriges Riksbank (established in 1668) and the Bank of England (established in 1694) would have been the first central banks, (c) although at that time central banks did not have a policy mandate and no concept of central banking would have existed before the 19th century. This book challenges these views and rehabilitates pre-1800 central banking, including the role of numerous other institutions, mainly on the European continent. Central banking should be defined as being associated with the issuance of “central bank money”, i.e. financial money of the highest possible credit quality, that is accepted for settlement of any other financial claim in the same way as species money is accepted as it is considered credit, liquidity and market risk free, to use modern terminology. Issuing central bank money is a natural monopoly, and therefore central banks were always based on public charters regulating them and giving them a unique role in a sovereign territorial entity. Many early central banks were not only based on a public charter but were also publicly owned and managed, and had well defined policy objectives. The book reviews these policy objectives and the financial operations of 25 central banks established before 1800. The book shows that many of the central bank controversies debated today actually date back to the period 1400-1800.

An Early Stablecoin? The Bank of Amsterdam and the Governance of Money

“…Its creation came during the middle of the 80 Years' War between the United Provinces of Holland and Spain, and at the beginning of a long period of relative prosperity in Holland often referred to as the Golden Age. The Bank was modelled after public deposit banks in Italy, notably the Banco di Rialto of Venice and similar banks in Rome, Genoa and Naples (Bindseil, 2019). It was fully owned by the city of Amsterdam, but had a governance structure made up of three (later four) commissioners -usually merchants or current or former members of the city council -who were appointed for one year at a time (often renewed; see van 't Hart, 2009).…”

“…Technological advances have improved the speed and scope of payments, but arguably the basic architecture of account-based money has remained largely unchanged, with the main change being that payments are executed electronically rather than on paper-based ledgers. Indeed, there has recently been a resetting of the consensus that the origin of central banking should be found in the early deposit banks like the Bank of Amsterdam, rather than later institutions that were founded to finance the sovereign (see Schnabel and Shin (2004), Quinn andRoberds (2007, 2014) and Bindseil (2019)).…”

Money, Banking, and Old-School Historical Economics

“…The mid-2010s brought a wave of bicentennial celebrations of central banks founded after the Congress of Vienna in 1815 that renewed interest in case studies outside the UK and the US Edvinsson, Jacobson, and Waldenström 2018;Jobst and Kernbauer 2016). Several comprehensive surveys (Roberds and Velde 2016a, 2016b, 2016cUgolini 2017;Bindseil 2020) have adopted a broad view of central banks and their predecessors the public banks of Europe, as institutions fulfilling a bundle of economic functions: not just setting monetary policy, but also the provision of liquidity services and reliable means of payment to the private sector, and of financing to the public sector. Another important lesson of this long-term history is that this last function made relations with governments perilous; survival often required these institutions to maintain a "gentlemanly distance" with their sponsors (see Karaman, Pamuk, and Yıldırım-Karaman 2019 for similar considerations in the case of monetary debasements).…”

Early French and German Central Bank Charts and Regulations

“…At present, a view on the origin and nature of central banks prevails, according to which: (1) the Riksens Ständers Bank and the Bank of England would have been the first central banks; (2) the basic first financial operation of central banks would have consisted in government financing; (3) the lender of last resort (LOLR) function, which from today's perspective would be a key characteristic of a central bank, would have developed only in the second half of the 19th century, or even later; (4) the orientation towards public objectives would also go back only to the second half of the 19th century, and therefore, overall, central banking could be regarded as a 19th or even 20th century phenomenon. These views have been challenged more recently by, for example, Roberts and Velde (2014), Ugolini (2017) and Bindseil (2019) who argue that there had been European continental central banks meriting this term in earlier centuries (see also Van Dillen, 1934). Bindseil (2019, chapter 1 and 2) explains in particular why the necessary and sufficient financial operation qualifying a financial institution as a central bank should be the issuance of central bank money, i.e.…”

“…Most of the dimensions of central banking covered by the legal provisions contained in the texts provided in this paper are discussed in more detail in Bindseil (2019). For example, as a sub-item of governance, issues of central bank ownership (private versus public), central bank independence, and prohibitions on lending to the Government are discussed in Chapter 3 of Bindseil (2019).…”