The Riksbank, or Bank of Sweden, the oldest central bank in the world, was the first European bank to issue banknotes. The English goldsmiths issued receipts that circulated as money, but the Riksbank was the first bank to issue paper money.
The Riksbank came into being in 1656 as a private bank split into two departments. One department was an
exchange or deposit bank organized along the lines of the Bank of Amsterdam. It accepted deposits of coins and precious metals, and these bank deposits changed ownership without precious metals or coins leaving the bank. They served as money, and were backed up by 100 percent reserves of precious metals. The second department was a lending bank.
The Riksbank issued its first banknotes in 1661. Other banks had already pioneered the use of bills of exchange
and transferable bank deposits that supplemented the circulation of coins. Sweden turned to banknotes as a
medium of exchange because payments in copper, which served as money in Sweden, were bulky and heavy, even for domestic transactions. Sweden adopted copper as the basis for money in 1625, perhaps because Sweden boasted of the largest copper mine in Europe and the Swedish government owned a share of it. Copper mines paved the way for banknotes when, for convenience and utility, they began paying miners in copper notes that could be redeemed for copper at the mines. These notes were preferable to copper coins and traded at a premium. In 1668, ownership of the Riksbank passed into the hands of the government,
making it the oldest central bank in operation today. By the early 1700s, banknotes were no longer a rarity in
Europe. The Bank of England was chartered in 1694 for the purpose of making loans and issuing banknotes, and by 1720, France was learning the disastrous consequences of issuing banknotes without discipline.
In 1789, the Riksbank began issuing government currency, and the Riksbank Act of 1897 conferred on the Riksbank a monopoly on the issuance of currency in Sweden. As late as 1873, the number of central banks in the world remained in single-digit territory, but by 1990, more than 160 central banks dotted the financial
landscape, the oldest being the Riksbank.
References
Bank for International Settlements. 1963. Eight European Central Banks.
Kindleberger, Charles P. 1984. A Financial History of Western Europe.
Samuelsson, Kurt. 1968. From Great Power to Welfare State: 300 Years of Swedish Social Development.
Sveriges Riksbank. 1994. Sveriges Riksbank: the Swedish Central Bank, a Short Introduction.
