On This Day – July 16th

On July 16th 1661 the first banknotes in Europe were issued by the Swedish bank Stockholms Banco founded by Johan Palmstruch.

Palmstruch had made two failed proposals for the creation of a banking institution in the 1650s before his third proposal, with the addition of a promise to pay half of the bank's profits to the crown, was accepted. King Charles X Gustav thus signed two charters on November 30th 1656 to create an exchange bank and a loans bank. The first of these (which opened in July 1657) took deposits for a fee (and accruing no interest) with the account owner later able to withdraw the money as cash or to write cheques. The second (which opened at the beginning of 1659) provided loans, financed by the bank owners and secured against property. These two departments were combined into Stockholms Banko with Palmstruch as general manager.

The bank itself was no great innovation, as it was a botched imitation of the large and successful banks in Amsterdam and Hamburg that had been founded earlier in the 17th century, but it was hoped that the bank would help to stabilise Sweden's currency. Sweden at that time did not have a single currency, rather there was one daler (the root of the word 'Dollar') minted in copper (kopparmynt) and another minted in silver (silvermynt). As the metal content of a copper daler had to be worth as much as that of a silver one, this meant that copper daler were large and heavy plate-sized coins. In practice, however, the silver daler was worth more and these were often hoarded, so generally only these large kopparmynt daler were commonly available.

Palmstruch's first major innovation was to use the money deposited by account holders to finance the loans rather than requiring capital to be provided by himself or the other bank owners.

His second major innovation was the introduction of paper banknotes as a solution to the bank's problems balancing deposits and loans. To cover the amounts requested by the account holders, in 1661 he began to make out credit notes (Kreditivsedlar) in round denominations which were freely transferable and backed by the promise of future payment in metal. These were the first European banknotes.

These banknotes became very popular very quickly simply because they were much easier to carry than the large copper daler, especially for making large payments (a note could be sent in an envelope – previously the large coins had to be transported by horse and cart). A further reason was that when the amount of copper in the coins was reduced the old coins were taken out of circulation faster than new ones could be minted, meaning that there was a shortage of money which could only be solved by replacing the coins with banknotes.

Here in the UK, the Bank of England started to issue polymer banknotes to replace the aging paper notes in circulation. Only the £5 and £10 notes have so far been replaced with polymber versions, the £20 due to be introduce in 2020. This gives us our question for today.

Who and what will be featured on the 2020 £20 polymer note?

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