[WORLDKINGS] On this day - January 31,2023 - The 404th Anniversary of the Bank of Amsterdam (1609)

31-01-2023

(Worldkings.org) The Bank of Amsterdam (the Amsterdamse Wisselbank), established on January 31, 1609, played a pivotal role in the 17th and 18th-century financial center of Amsterdam.

The Amsterdam Exchange Bank (Wisselbank, or Bank of Amsterdam) began operating on January 31, 1609. It was set up to resolve the practical problems created for merchants by the circulation of multiple currencies in the United Provinces, where there were no fewer than fourteen different mints and copious quantities of foreign coins.

By allowing merchants to set up accounts denominated in a standardized currency, the Exchange Bank pioneered the system of cheques and direct debits or transfers that we take for granted today. This allowed more and more commercial transactions to take place without the need for the sums involved to materialize in actual coins.

 

As the seventeenth century began, the Dutch were the driving force behind European commerce. With Amsterdam as capital of Holland, it served as the central point of trade. Amsterdam’s currency consisted primarily of the coins of the neighboring countries and to a lesser extent its own coins. Many of these foreign coins were worn and damaged, thus reducing the value of Amsterdam’s currency about 9 percent below that of "the standard" or the legal tender. Thus, it was impossible to infuse any new coins into circulation. Upon the circulation of newly minted coins, these new coins were collected, melted down, and exported as bullion. Their place in circulation was quickly taken by newly imported "clipped" or "sweated" coins. Thus, undervalued money was driven out by overvalued or degraded money, due to the legal tender status given these degraded coins.

To remedy this situation, the Bank of Amsterdam was originated in 1609. The Bank was to facilitate trade, suppress usury, and have a monopoly on all trading of specie. But the bank’s chief function was the withdrawal of abused and counterfeit coin from circulation. Coins were taken in as deposits, with credits, known as bank money, issued against these deposits, based not on the face value of the coins, but on the metal weight or intrinsic value of the coins.

Thus, a perfectly uniform currency was created. This feature of the new money, along with its convenience, security and the city of Amsterdam’s guarantee, caused the bank money to trade at an agio, or premium over coins. The premium varied (4 to 6 and 1/4 percent), but generally represented the depreciation rate of coin below its nominal or face value.

The bank was committed, from the time of its creation, to maintain at all times a 100-percent reserve ratio with respect to "demand" deposits. For a very long time, over one hundred fifty years, the Bank of Amsterdam scrupulously fulfilled the commitment upon which it was founded. Evidence reflects that during the first years of its existence, between 1610 and 1616, both the bank’s deposits and its cash reserves came very close to one million florins. From 1619 to 1635, deposits amounted to nearly four million florins and cash reserves exceeded three million, five hundred thousand. After this slight imbalance, equilibrium was restored in 1645, when deposits equaled eleven million, two hundred eighty-eight thousand florins and cash reserves added up to eleven million, eight hundred thousand florins. Equilibrium and growth were more or less stable, and in the eighteenth century, between 1721 and 1722, the bank’s deposits totaled twenty-eight million florins and its stock of cash reached nearly that amount, twenty-seven million.

 

According to wiki.mises.org


Kyna ( Collect) - WORLDKINGS (Source of photos: Internet)

 

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