The Origins and Nature of Scandinavian Central Banking

242 Pages·2016·5.288 MB·English

by  Steffen Elkiær Andersen (auth.)

PALGRAVE MACMILLAN STUDIES IN
BANKING AND FINANCIAL INSTITUTIONS
SERIES EDITOR: PHILIP MOLYNEUX
The Origins and
Nature of Scandinavian
Central Banking
Steffen Elkiær Andersen
Palgrave Macmillan Studies in Banking and
Financial Institutions
S eries Editor
Philip   Molyneux
Bangor University
United Kingdom
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Steffen Elkiær   A ndersen
The Origins and
Nature of
Scandinavian Central
Banking
Steff en Elkiær   Andersen
Rungsted , Denmark
Palgrave Macmillan Studies in Banking and Financial Institutions
ISBN 978-3-319-39749-8 ISBN 978-3-319-39750-4 (eBook)
DOI 10.1007/978-3-319-39750-4
Library of Congress Control Number: 2016955717
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Preface and Ack nowledgements
Th e very early and tender seeds for this book were sown in the mid-1990s,
when I was travelling in Italy with my bridge club. One of the bridge
club members, my old friend, Flemming Farup, asked me: “Steff en, what
is really the diff erence between a central bank and an ordinary bank?
What sort of an animal is a central bank really?” Flemming Farup, a jurist
from the University of Copenhagen, was employed all his working life
at Danmarks Nationalbank, ending his career as head of department for
HR, organization, and security. However, he is neither an economist nor
a banker. His question demonstrates that even for high ranking offi cials
of a central bank, the nature and essence of central banking can be elusive
concepts. I am by no means implying that all, or even the majority of,
economists, fi nancial journalists, and politicians have captured the idea.
To what extent I have understood it, I will leave to others to judge.
Th ere were two reasons why Flemming thought he might get some
sort of answer from me. One reason was that I am an economist and
was a banker most of my working life. While studying at the University
of Copenhagen, I specialized in monetary theory and economic his-
tory. I was fortunate to count among my teachers Ms. Bodil Nyboe
Andersen, the later head governor of Danmarks Nationalbank, as well as
the internationally well-known professor Niels Th ygesen, a member of
the Delors Committee and thus one of the founding fathers of the euro.
Th e second reason was that my father, Svend Andersen, was a governor
v
vi Preface and Acknowledgements
of Danmarks Nationalbank at that time and in that capacity Flemming’s
boss. Flemming probably thought that he could not ask his boss directly:
“Mr. Andersen, what are you really doing?” so he asked me instead.
M y father died many years ago, but I hope he would have liked this
book. It is dedicated to his memory. I learnt much about life from him,
not only about the perennial problems of balance of payments, foreign
exchange shortage, infl ation, and government profl igacy. His under-
standing of politics and history was certainly also an inspiration for me.
However, while Flemming Farup’s question from the 1990s kept lin-
gering at the back of my mind, another event sparked new life into the
question. In 2014, in commemoration of the outbreak of the Great War,
the Banque de France organized a conference on the subject of how the
Great War aff ected the central banks of belligerent as well as neutral
countries. As a member of the European Association for Banking and
Financial History (EABH), I was invited to present a paper at that con-
ference. Chapters 1 , 2 , 6 and 7 in this book are (substantially) expanded
versions of the paper I presented at the Paris conference in November
2014. I am grateful to both the Banque de France and to the EABH for
having provided me with that opportunity.
I n the spring of 2015, I suggested to Palgrave Macmillan that the
paper prepared for the Banque de France conference be expanded to a
book on the origins and nature of Scandinavian central banking. I am
happy that the proposal was accepted. I also saw it as an opportunity to
produce what could be seen as a sort of “Volume II” to my earlier book,
Th e Evolution of Nordic Finance (Palgrave Macmillan, 2010).
I am happy and grateful that I have had the assistance from a num-
ber of people without whose helpful support this book would have been
far less meaningful, if it would have appeared at all. I am particularly
in debt to Jens Th omsen, a former member of the board of governors
of Danmarks Nationalbank. He reviewed for me the above-mentioned
paper I presented at the Banque de France conference and, later, the
Chap. 9 of the present book. I took due note of his comments. Jens
Th omsen and I are both members of the Copenhagen Executive Forum,
a private “discussion group”, chaired by the above-mentioned Flemming
Farup. Together, we have visited a number of the European central banks
and other European institutions, including the ECB.
Preface and Acknowledgements vii
I am also indebted to Jan E. Qvigstad, a former member of the board
of governors of Norges Bank and a co-author of writings celebrating the
200-year anniversary of the founding of Norges Bank (2016). He spent
much of his precious time patiently answering my questions.
M ention should also be made of Hans Dellmo, for whose help I am
grateful.
F inally, I am eternally indebted to Marie Holm Hvidt, my lovely niece,
who took upon herself the arduous task of transforming my manuscript
into a format the publisher could accept.
Of course, I also have to thank my delightful wife for the patience
and forbearance she has shown during my years of preoccupation with
this work. If my preoccupation has occasionally made me appear short-
tempered, I apologize.
In spite of all the help I have had, any remaining errors, misrepresenta-
tions, and misunderstandings are, of course, my sole responsibility.
Steff en Elkiær Andersen
Rungsted, Denmark
July, 2016
Contents
Part I Th e Nature of Central Banking 1
1 Some General Remarks on “Central Banking” 3
1.1 Th e Emerging Public Interest in “Central Banking” 3
1.2 Some Preconditions for Having “Central Banks” 6
2 Defi ning “Central Banks”: Four Criteria 1 1
2.1 From Chartered Banks to Central Banks 11
2.2 Th e Four Criteria Defi ning Central Banks 12
2.2.1 Criterion I: Being the Sole Note-Issuing Bank
in the Country 12
2.2.2 Criterion II: Being the Guardian of the Value
of the Country’s Currency 13
2.2.3 Criterion III: Being the Bank for the 
Government 16
2.2.4 Criterion IV: Being the Bank for the 
Country’s Other Banks 17
2.3 What Is Not Mentioned? 20
ix
x Contents
Part II Before the Deluge. Th e Very Diff erent Origins
of Scandinavia’s Central Banks, the Great War,
and the Four Criteria 23
3 Sveriges Riksbank, and the Four Criteria 2 5
3.1 Th e Origins. Stockholms Banco (1656) and the 
Invention of Banknotes 25
3.1.1 Th e Political Scenario 25
3.1.2 Stockholms Banco, War Finance and the 
Invention of Banknotes (1656–1664) 27
3.2 Sveriges Riksbank (1668–1866–1914) 30
3.2.1 Th e Formation, Organization, and Operation
of the Bank 30
3.2.2 Sveriges Riksbank as an Issuer of Banknotes
(Criterion I) 35
3.2.3 Sveriges Riksbank as Guardian of the Currency
(Criterion II) 38
3.2.4 Being the Banker for the Government.
Criterion III 44
3.2.5 Sveriges Riksbank as Bank for the Country’s
Other Banks (Criterion IV) 46
4 Danmarks Nationalbank and the Four Criteria 53
4.1 Th e Origins. Th e Copenhagen Bank (1736–1813) 53
4.1.1 Th e Political Scenario 53
4.1.2 Th e Copenhagen Bank (or the K urantbank ) 55
4.1.3 An Interlude. Th e Rigsbank, (1813–1815) 59
4.2 Nationalbanken i Kiøbenhavn (1818–1936) 61
4.2.1 Th e Scenario 61
4.2.2 Nationalbanken as an Issuer of Banknotes
(Criterion I) 63
4.2.3 Nationalbanken as Guardian of the Currency
(Criterion II) 64
4.2.4 Th e Nationalbank as Bank for the 
Government. (Criterion III) 66
4.2.5 Th e Nationalbank as Bank for the Country’s
Other Banks. (Criterion IV) 67