Current research
The Bank of Amsterdam: what it was and why might we care
Stephen Quinn and I have recently completed a book on the Bank of Amsterdam. This book is the product of about 15 years of research.
What was the Bank and why did we write a book about it: the Bank of Amsterdam (Dutch: Amsterdamsche Wisselbank) was a public bank of the City of Amsterdam that existed from 1609 to 1820. Although the term "central bank" had not yet been invented, the Bank's success laid the groundwork for later central banks such as the Bank of England (founded 1609), the Federal Reserve (founded 1913), and many others. It is not an exaggeration to call the Bank the "grandparent" of the Federal Reserve.
Some modernish aspects of the Bank:
Fiat money: From about 1685, the Bank's money was not payable in gold or silver. In modern terminology, it existed as fiat money.
Gross settlement: The Bank's money did not consist of banknotes but of balances recorded in the Bank's accounts. Payment through the Bank occurred when a balance was transferred from payor's account to the account of the payee. Such transfers constituted final settlement. In modern jargon, the Bank operated a gross settlement system.
Exorbitant privilege: Although the Bank's money was fiat, it played a central role in the monetary system of early modern Europe, much as Federal Reserve dollars play a central role in today's world. More specifically, bills of exchange payable through the Bank were a widely accepted and often essential form of payment in most European commercial cities. A modern term for such centrality is exorbitant privilege.
Open market operations: The Bank actively managed its currency through outright sales and purchases against other assets, open market operations as they are called today. The Bank was fully engaged in such operations by the mid-17th century.
Repo facility: From 1683, the Bank allowed its customers (primarily rich Amsterdam merchants) to convert safe assets (trade coins) to bank money via a facility that resembles a modern central bank repurchase (repo) facility. Interest rates on Bank repos were very low (1/4 percent for silver coins and 1/2 percent for gold), perhaps the lowest interest rates in the world at the time. During the 18th century, credit available through facility helped Amsterdam attract sizable portions of the world's gold and silver production.
Negative equity: As an agency of the City of Amsterdam, the Bank was called upon to make loans to the City and an associated government-sponsored-enterprise (the Dutch East India Company). Often the value of the Bank's liabilities exceeded the value of is assets, causing it to have negative equity (when its accounts are honestly evaluated). Especially after the large interventions in the wake of the 2020 Covid crisis, many modern central banks, the Fed included, find themselves in a similar position.
What the book does: It uses 172,000 transactions from the Bank's master account (comparable to the Fed's System Open Market Account) to reconstruct the Bank's activities over much of its history, from 1666 (the start of surviving ledgers) through 1791. With this data, the Bank's balance sheet can be reconstructed for most of the 18th century.
What the book shows: Already by the 18th century, there was an institution (the Bank of Amsterdam) operating much as a modern central bank.
Why haven't you heard of the Bank? Fiat money-issuing central banks can operate with negative equity, but there are limits to this practice. If a central bank's losses become sufficiently large, the central bank may lapse into what is called policy bankruptcy, a situation where the central bank must compromise its policy objectives in order to continue operating (see my section on Fed accounting). The Bank of Amsterdam first fell into policy bankruptcy in the 1780s due to its large loans to the insolvent Dutch East India Company. A full collapse followed after France's invasion of the Dutch Republic in 1795, and the Bank's money fell into disuse. At the close of the Napoleonic era, the Bank was superseded by a national central bank of the Netherlands (De Nederlandsche Bank, founded 1814). The Bank of Amsterdam was liquidated in 1720.