Bank of Amsterdam

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The Bank of Amsterdam, established in 1609, rose to become a major hub of world monetary affairs in the seventeenth and eighteenth centuries. As a so-called bank of deposit, the Bank of Amsterdam hardly resembled anything we now call a bank. It rarely even made loans, with the exception of loans to Dutch municipalities and to the Dutch East India Company. The bank held deposits of major currencies and facilitated payment in foreign trade transactions.

The model for the Bank of Amsterdam were banks in the small Italian city-states of Venice and Genoa, where the circulating money consisted of a medley of currencies issued by home governments and neighboring states. Currency that flowed in to these areas from trading partners was often clipped and worn, creating uncertainty about the value of foreign bills of exchange paid in these currencies. To remove this uncertainty these small city-states required that foreign bills of exchange above a certain amount be paid in transfers between accounts in a bank rather than in domestic currency. Special banks enjoying full government backing were established to handle these transactions.

Before 1609 the prevalence of worn and clipped coins had depreciated the value of Amsterdam’s currency by 9 percent below the value of currency fresh from the mint. With Amsterdam’s merchants running short of good money to pay bills of exchange, the government created the Bank of Amsterdam as a means of providing a currency of uniform value. The bank was a bank of deposit, accepting deposits of currencies at face value, foreign or domestic, worn, clipped, or freshly minted. Depositors paid a small recoinage and management fee deducted from each deposit. The balance on a depositor’s account constituted a form of money called money of account or bank money and it never suffered any kind of debasement. Its value remained the same as if it were fresh from the mint. Along with the establishment of the bank came the legal requirement that foreign bills of exchange drawn on Amsterdam, equal to or greater than 600 guilders, be drawn for payment in bank money.

The Bank of Amsterdam also took deposits of bullion, giving each customer a receipt valued in bank money for a deposit of bullion, and crediting the customer’s account of bank money in an amount equal to the value of the bullion deposit. The receipt entitled the customer to buy back the bullion with bank money at the price stated on the receipt. The customer paid a modest fee to the bank for storage of the bullion, and if the customer defaulted on the storage fee, the bank took possession of the bullion and sold it as part of the bank’s profit. The bank money was much more convenient to handle than bullion and just as good in the eyes of European bankers. Vast deposits of coin and bullion made the Bank of Amsterdam an important holder of the reserves of the European monetary system, putting the bank in a position to play a regulatory role.

Because the Bank of Amsterdam was not a lending institution it stored all the currency and bullion deposited with it in readiness to redeem its outstanding bank money. Bank money was superior to currency and merchants were willing to pay a premium for it, enabling the bank to earn income by selling its bank money at a premium.

In the 1780s wartime difficulties forced the bank to underwrite loans to merchants in difficulty, and the bank saw its reserves drop substantially relative to the deposits of bank money owed to the public. The public turned cautious, and when the French invaded in 1795, caution turned to panic. Unable to redeem all the deposits of coins and bullion, the bank closed down. In 1802 a forced loan allowed the bank to reopen its doors, but it was not successful, and in 1820 the Bank of Amsterdam was liquidated.