Amsterdamse Wisselbank

Amsterdam was the first northern European city to establish its own bank in 1609: the Amsterdamse Wisselbank (henceforth, AWB), named after "wissel" ("bill of exchange"). The aim was to stabilize and gain control over the currency.

The AWB's founding year coincided with a 1609-21 truce in the 80-year war of the emerging Republic of the Seven United Netherlands with Spain. It marked the begin- ning of the Republic's "Golden Century" of trade, exploration, military power, science, incipient industrialization, income growth and political organization. In 1609 the seven member provinces of the new Republic were still largely autonomous, each with the right to issue its own currency. Holland's expanding trade required a stable currency, but at the same time it had made the Republic's money popular in the Baltics and other Dutch export destinations (Van Dillen, 1928). With a continuous outflow of its own strong coins, about 40 domestic mints and free inflow of foreign coins, altogether there were about 800 different currencies in use in the Republic, alongside the official money of account, the guilder (or florin) (French, 2006).

Financial transactions in the Dutch Republic of the 1600s were dominated by so-called cashiers, who issued cheques and certificates of deposit. There was continuous with- drawal of good coins from circulation, and the time-consuming and uncertain exchange of cashier certificates for coins (depending on coin stocks) (Van Velden, 1933). In sum, the Republic had no reliable currency, no efficient financial system, and no control over its domestic payment and credit system or over its monetary relations with other countries.

This is what the Amsterdam city council sought to rectify, when it established the AWB and outlawed cashiers in 1609. The AWB was given the exclusive privilege of handling all cheques with a value exceeding 600 guilders, and it guaranteed to pay full-value coins on demand. In practice a dual system of official AWB and private cashier money manage- ment developed. In 1659 the Republic established a monopoly on coin issuance. Other currencies gradually diminished in importance. An important reason lay in AWB opera- tions (Quinn and Roberds, 2005).

In 1683 the AWB started accepting deposits of precious metal against receipts, much like a pawnshop. This boosted the inflow of precious metal, which solidified Amsterdam's position as Europe's centre in the silver and gold trades. The receipts themselves became means of payment for the larger trade transactions in the Republic and far beyond. Bullion could be deposited with the AWB at a fee and in return for a receipt. This conferred the right to withdraw the bullion within six months. Simultaneously a credit in the books of the AWB was entered equal to the value of the bullion minus 5 per cent. Bullion could be withdrawn upon presentation of the receipt and against bank money plus a fee. If the depositor failed to redeem the bullion deposit within six months or to renew the deposit term, then the bullion could only be bought back from the AWB at its market price. The fact that many merchants deposited bullion indicates that bank receipts were valued above bullion. Indeed, bullion typi- cally remained in the bank and this gave the AWB interest income due to the 5 per cent deduction, and from fees for depositing, deposit term renewal, and transfers (Quinn and Roberds, 2005).

The spread of both AWB receipts and bank money may be attributed to the public backing of the AWB, to the fact that large transactions were required by law to be in AWB money, and to the giro banking services the AWB offered. Alternatively, the success of AWB money has been attributed to its alleged 100 per cent backing by bullion, which was a fiction: by 1657 the AWB was already allowing the Amsterdam Treasury and United East Indies Company to overdraw their accounts. A 1795 public investigation found that, in 1760, only one-third of the required bullion was in an AWB vault (Van Dillen, 1928). In the tradition of the then fashionable bullionist sound-money view, this uncovered credit creation caused a public outcry and was duly deplored and then recti- fied from 1795 to 1802, by which time the AWB had already sunk into irrelevance. In reality, the AWB's public credit creation, financing trade and government, may well have been one of the reasons for its prominence and longevity.

One sign of the popularity of AWB deposits was that a guilder balance at the AWB traded at higher value than a guilder in coin. The difference is called the agio. In effect this established two separate units of account, the current guilder and the "banco" guilder - a unit of account officially recognized already in 1659. By taking in all coins at their precious-metal value and issuing receipts against them from 1683, the AWB was attract- ing so much precious metal that the Dutch guilder was gradually replacing currency from other provincial mints. Sometime during the second half of the seventeenth century, custom or law (probably both) ended deposit withdrawals. AWB deposit receipts had become "outside" money, with no offsetting liability. This gave the AWB more freedom to fight debasements, by raising its agio when the silver content of coins dropped. The AWB was thus instrumental in establishing a reliable payment and credit system for tradesmen and a stable currency, and even engaged in open-market operations on its receipts - and all this at a time when the usual public monetary management method was still coin clip- ping and "crying down" currency values (Dehing, 2012).

The AWB was closed in 1819, five years after King Willem I had founded De Nederlandsche Bank, which became the country's first central bank officially, though not in practice. Over the course of its two centuries' history, the Amsterdamse Wisselbank was the Dutch authorities' instrument of choice to transform banking practice, to standard- ize and control the domestic currency, and to harness the financial system to commercial and public interests. As such, it was the first central bank in modern capitalism.

See also:

Bullionist debates; Cash; Inside and outside money.