Maybe the New York Fed is trying to tell modern bankers something by reminding them of history.
This article appeared on Fed’s website.
Federal Reserve Bank of New York
In 1668, Johan Palmstruch, the head of Stockholm Banco, the precursor to the oldest central bank still operating today—the Swedish Riksbank—was charged and sentenced to death.
At the time, Sweden was one of Europe’s great powers, an empire that stretched across Scandinavia into today’s Baltic nations and parts of Germany, Poland and Russia. The country’s principal currency was enormous copper plates, called dalers. The Swedish King deputized Palmstruch to modernize the country’s finances.
Palmstruch issued Europe’s first paper currency (China’s first version had appeared in 1024) which would be backed by the dalers held in the bank. As the dalers piled up, Palmstruch started making loans. But King Gustav died and Sweden’s ruling council decided to strike new copper plates that were worth less than the old ones.
Swedes began lining up at the Banco to claim their old dalers, whose value had suddenly gone up.
But Palmstruch had lent out too much. His solution: Start printing out even more paper that anyone could redeem at will. But the amount of paper money in the market began to vastly outpace the Banco’s actual daler holdings and the bank failed.
Palmstruch was sentenced to death although he was later pardoned.
This article appeared on Fed’s website.
Federal Reserve Bank of New York
In 1668, Johan Palmstruch, the head of Stockholm Banco, the precursor to the oldest central bank still operating today—the Swedish Riksbank—was charged and sentenced to death.
At the time, Sweden was one of Europe’s great powers, an empire that stretched across Scandinavia into today’s Baltic nations and parts of Germany, Poland and Russia. The country’s principal currency was enormous copper plates, called dalers. The Swedish King deputized Palmstruch to modernize the country’s finances.
Palmstruch issued Europe’s first paper currency (China’s first version had appeared in 1024) which would be backed by the dalers held in the bank. As the dalers piled up, Palmstruch started making loans. But King Gustav died and Sweden’s ruling council decided to strike new copper plates that were worth less than the old ones.
Swedes began lining up at the Banco to claim their old dalers, whose value had suddenly gone up.
But Palmstruch had lent out too much. His solution: Start printing out even more paper that anyone could redeem at will. But the amount of paper money in the market began to vastly outpace the Banco’s actual daler holdings and the bank failed.
Palmstruch was sentenced to death although he was later pardoned.
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