- The Swedish National Bank (Sveriges Riksbank) is the oldest central bank in the world.
- It was founded in 1668
- In the past, it was forced to finance wars and king’s expeditions
- The Bank was granted a monopoly on issuing banknotes in 1897
Recently, I have covered the story of one of the most important state organisations we can hardly imagine living without in a modern democratic society. We have discovered how the Swedish Parliament has developed from the Parliament of the four Estates which took some power away from the king and put it into the hands of the Nobility and the remaining three Estates. Moreover, we have seen the more modern history of the Riksdag and the facilities it operates in. In these stories, I mentioned another highly relevant organisation covered in this post several times.
The Swedish National Bank (Sveriges Riksbank) has been closely connected to the Parliament during most of its existence and the closeness of the headquarters of the two organisations between 1907 and 1971 only adds something special to the relationship between them. Although the Bank carries an important title related to the date when it was established, its foundation is not the beginning of our story.
Instead, we begin with the High Lord Chancellor Axel Oxenstierna who was a big supporter of creating banks in Sweden. In 1619, Oxenstierna proposed ‘a bank in every town’ rule and he supported the idea at the Riksdag during the next few decades until his death in 1654. Despite the support of a person as influential as Oxenstierna, the first bank in Sweden was not established before 1656 which means that the man who was perhaps most responsible for its eventual creation has never seen it come to life.
Stockholms Banco, the exchange and loan bank founded in 1656, was given a privilege by King Karl X Gustav. The bank was a private company owned by Johan Palmstruch heavily regulated by the state. Apart from other functions it fulfilled, Stockholms Banco was allowed to issue banknotes which eventually had catastrophic consequences for the short-lived company.
After the public lost their trust in the banknotes issued by Stockholms Banco, the bank went bankrupt only eight years after being established. Moreover, Palmstruch was later convicted of mismanagement by the Svea Court of Appeal (Svea Hovrätt).
In 1668, the Riksdag of the four Estates approved a proposal for re-establishment of the bank under the name Bank of the Estates of the Realms (Riksens Ständers Bank) making it the world’s first central bank. All Estates with the exception of the Peasants supported the idea and therefore the new bank was created. A few years later, the bank received its first official building at Järntorget where it resided until the turn of the 20th century when it moved to Helgeandsholmen.
As was the case with pretty much all of state organisations at the time, the reigning king had a great influence in the bank, too. This way, the bank was forced into financing wars and king’s expeditions including the Great Northern War which turned out to have disastrous consequences on Sweden. Around the time the war took place, the bank was known as the Bank of His Majesty’s Estates highlighting the king’s power.
Following the death of Karl XII, during the Age of Liberty, the bank became independent for a while but the situation lasted only until the Hat party (Hattarna) gained control over the Parliament. During the 18th century, the Bank of the Estates of the Realms also started implementing programmes meant to restore price stability in the country for the first time. The measures taken were based on the findings of contemporary economists who, at the time, identified the link between banknote stock, inflation and exchange rates with other countries.
However, since the amount of data available was very limited and it was essentially impossible for anyone to have any experience with similar strategies, many might have been unable to estimate the dangers of their actions. Consequently, one of such programmes, adopted in 1766-67, triggered a drastic deflation crisis. However, economic crises were not so unusual around the time.
In the attempts to solve the price stability issues, the bank relied on redeeming the value of banknotes in metal coins with a fixed value given by the price of the metal they were made of. Eventually, in 1834, Sweden adopted a stable silver standard.
The silver standard is a monetary system based on the value of a fixed weight of silver. This weight then acts as the so-called standard economic unit of account which, in simple terms, is the unit in which value is expressed. The silver standard was commonly used around the world from the mid-15th century until the 19th century.
The current name, Swedish National Bank (Sveriges Riksbank), was established in 1867 during the period when the demand for credit from private companies increased rapidly. This situation created ideal conditions for banks in Sweden leading to the existence of roughly 30 banks in the country at the time.
A new currency, the Swedish Krona, was introduced together with the gold standard in 1873, 130 years before the Swedes decided to keep their local currency and declined the Euro in a referendum. The bank became a central bank by modern standards in 1897 when it was granted a monopoly on issuing banknotes. At this point, the Swedish National Bank was an agency of the Riksdag and the king only held the right to appoint the Chairman of the board of directors.
In recent times, the bank has been mostly responsible for the regulation of the economy and managing the monetary policy in order to reach the inflation target of two percent. During the last couple of years, it attracted significant international attention by introducing unusual, perhaps experimental, policies such as the negative base interest rates.
There is one thing I intentionally did not mention in this post. It is the buildings in which the Swedish National Bank has resided during the centuries of its existence. You do not need to worry, though, as I will discuss these in detail in the next post coming in a couple of days. Until then, you can find more stories and places to visit in Stockholm and other major cities in our mobile app Trevl. Check out our Instagram account, too, for new images of beautiful places every day.