Bank of Amsterdam

The Bank of Amsterdam or Wisselbank was an early bank, vouched for by the city of Amsterdam, and established in 1609. It was the first public bank to offer accounts not directly convertible to coin. As such, it has been described by some as the first true central bank, even though that view is not uniformly shared. The Amsterdam Wisselbank was also active in the production of coins. For decades the assay master of the Bank sent out stocks of gold and silver to the various Mints in the United Netherlands to receive new coins in return.
Unlike the Bank of England, established almost a century later, it neither managed the national currency nor acted as a lending institution ; it was intended to defend coinage standard. The role of the Wisselbank was to correctly estimate the value of coins and thus make debasement less profitable. It occupied a central position in the financial world of its day, providing an effective, efficient and trusted system for national and international payments, and the Dutch guilder was a de facto reserve currency in Europe in the 17th and 18th century. David Hume praised the Bank of Amsterdam for its policy of 100 percent specie-backed deposit reserves.
The bank's full-reserve policy relaxed over time as it lent money to finance overseas trade and to support the Dutch economy, but it remained liquid by requiring good collateral on its loans. This changed with the Fourth Anglo-Dutch War, when the Dutch East India Company defaulted on large unsecured advances from the bank. Despite several attempts to recapitalize, confidence in the bank never recovered. During the last decade of the Republic of the United Provinces, in 1790, the premium on the bank's money disappeared, and by the end of the year, it had declared itself insolvent. The City of Amsterdam assumed control of the bank in 1791. The Nederlandsche Bank was established in 1814, and took over money issue duties for the new Kingdom of the Netherlands, while the Wisselbank entered liquidation in 1819.

Tasks

Established on 31 January 1609, the Bank of Amsterdam played a pivotal role in the 17th and 18th-century financial center of Amsterdam. 500 different coins – legal or illegal – from a wide variety of countries and regions circulated, but a good system to determine exchange rates did not exist. At the bank, people could exchange their coins for fully-fledged and widely accepted trade currencies. The Wisselbank protected foreign creditors by settling debts through the bank and offering depositors its own coins that were not debased.
The bank was given a fourfold task:
The management of the Bank of Amsterdam was in the hands of three, later four commissioners elected by the city council. They were often former schepenen or members of the city council. Two of the commissioners had to be present daily at the office: they had the oversight of four accountants, two clerks with one servant, four counter bookkeepers, three receivers together with another servant, ushers and an assayer, who knew the secrets of trade in precious metals and minting. Each of the accountants had his own specific task: the first took the written orders for payment receipt, the second held in the journal, the third balanced the book, and the fourth took care of the ledger. In 1715 there were five and a year later six commissioners, the number the bank kept until the end of the eighteenth century. From the beginning till the end of the 18th century the average age of commissioners dropped from 46 to 33 years. Two-thirds of the commissioners were merchants or bankers – which the other account holders trusted. Some of the commissioners had ties with the Dutch East India Company or the West India Company, both account holders. Whoever did business with the VOC was obliged to do so via this Wisselbank .

Units of account

The main objective of the Wisselbank's establishment was to maintain a stable silver bank currency for the Dutch Republic's burgeoning international trade which was immune from the numerous depreciations which occurred after its independence from Spain, as its constituent provinces kept wringing out more stuivers from a fixed quantity of silver.
After 1618, it was able to fix the Dutch rijksdaalder of 25.4 g fine silver at 2 Dutch guilders or 50 stuivers, guaranteeing a payout of 10.16 g fine silver for each bank gulden deposited.
While initially successful in halting the depreciation of the Dutch currency, the Wisselbank was tested from the 1630s, when the provinces tried to further raise the gulden equivalent of coins imported from the southern Spanish Netherlands: the patagon of 24.55 g silver raised from 48 to 50 stuivers, and later on the ducaton of 30.69 g silver from 60 to 63 stuivers.
Fearing the loss of its Europe-wide reputation if 2.5-gulden rijksdaalders were repaid with cheaper 2.5-gulden patagons, the Wisselbank firmly upheld the original gulden banco of 10.16 g fine silver as distinct from the lower-valued circulating gulden: so the bank accepted the patagon only at 48 stuivers, and the ducaton at 60.
In 1659, the Dutch Republic issued its own versions of the Spanish Netherlands coins, the silver ducat of 24.36 g fine silver and the silver rider of 30.45 g fine silver, worth respectively 50 and 62.5 stuivers as currency, and 48 and 60 stuivers in the Wisselbank: hence, 9.67 g per gulden currency and 10.15 g per gulden banco as computed from the ducaton.
From 1683, the Wisselbank introduced a system of receipts with the gulden banco's agio allowed to float at 4 to 5% subject to supply and demand for banco vs currency. Both types of gulden were on the silver standard, with gold coins and bars quoted at fluctuating exchange rates.
Lucien Gillard calls it the European guilder, and Adam Smith devoted many pages to explaining how the bank guilder worked.

Seventeenth century

The modern practice of corporate governance has its roots in the 17th-century Dutch Republic. The first recorded corporate governance dispute in history took place in 1609, between the shareholders/investors and the directors of the Dutch East India Company, the world's first formally listed public company. In 1609, and 1611, Le Maire was the most important account holder at the Wisselbank. Between 1611 and 1620, the number of account holders in the Wisselbank grew from 708 to 1,202. In 1622, it was forbidden to trade in gold and silver without the authorization of the bank. After the Treaty of Bärwalde in 1631, France transferred its financial support to the Swedish army with the help of Jean Hoeufft and the Wisselbank.
The city of Amsterdam, which owned the bank and guaranteed the deposits, derived from it a considerable revenue, but was responsible for the losses too. The bank seems to have hardly supported the Dutch West India Company; but in 1637, the Stadsbank van Lening did so. It provided the Admiralty of Amsterdam and the mint masters in Enkhuizen, Harderwijk, Kampen, Medemblik, Zwolle and Utrecht with funds booked as private loans. In 1645, for which year ledgers of the Wisselbank are available, the firm Coymans was the largest account holder at the bank with a turnover of over 4 million guilders. In July 1647, more than half a year before the conclusion of the peace treaty in Münster, the Spanish government made a proposal aimed at making Amsterdam the staple market for Spanish silver. In October the States General decided to authorize the admiralties to issue passports for the export of silver imported from Spain, Andries Bicker was involved in the request. Amsterdam became a recognized staple market for Spanish silver from the New World.
After the Treaty of Münster between Spain and the Dutch Republic, a lot of silver from Cádiz and Potosí arrived in Amsterdam. From the beginning, the bank had to supply the provincial and the various local mints with silver. While trading silver in stock was formally prohibited, its allure stemmed from the silver standard in place. In 1652, the Wisselbank made no profit. In a fire in the town hall, many coins melted and had to be cleaned; the bank was temporarily moved to the Jan Roodenpoorts tower. In 1654 quite a few people were in debt to the Wisselbank after the First Anglo-Dutch War. In 1666, Jan de Neufville and the Coymans company both deposited sums exceeding 3.5 million guilders with the Wisselbank. From 1666 the Wisselbank is quite actively purchasing millions of silver. In August 1672, the bank was stormed by private account holders who wanted to withdraw their money. Johan Huydecoper, Joan Geelvinck, and his father Cornelis Geelvinck were commissioners in the year of disaster. In the following year the Wisselbank booked a loss.
On 17 August 1657, the bank began to advance money on loan to the East India Company. Silver coins such as the rijksdaalder and the coveted Spanish dollar were in high demand in Old Batavia, prized on the Spice Islands, and sought after in Southeast Asia, ultimately proving to be lucrative exports. At first, the city had to give special permission for each loan. Later on, loans were made easier, and by decree of 5 October 1682, the East India Company could at any time have at its disposal 1,700,000 bank guilders. In 1683, Christoffel van Swoll was appointed as governor-general of the East Indies; he had good connections as his father was an attendant of the bank between 1656 and 1678. The Qing dynasty became somewhat more receptive to foreign trade after gaining control of Taiwan in 1683 following its conquest. Until then few people in China were engaged in coastal and foreign trade, but soon Batavia would become a popular destination for Chinese merchants.

Introduction of a system of receipts in 1683

The depositor received a "récépissé" drawn on the bearer, entitling him to take out the money deposited, at any time within six months, upon paying one-eighth percent, and upon re-depositing in the bank that amount of bank money which was credited to him when the deposit was made. This receipt system had been adopted in Amsterdam for a short time in 1638, and 1656; after 1683, it proved permanent. If anyone wished to have a certain kind of coin from the bank, he had only to buy a receipt.
The receipts offered the bank the potential of a new means of competition in the international struggle for precious metal supplies. The receipts enabled account holders to cover themselves... to systematically hedge against the market's volatility. The Bank of Amsterdam introduced a form of fiat money that successfully competed with the coinage of the time. After 1683, the bank was able to conduct more regular and aggressive policy interventions, from a virtually nonexistent capital base.
By a decree of 16 April 1684, the bank commissioners secured the monopoly of the trade in silver and silver coins. The few exceptions made here were in favor of goldsmiths and silversmiths and merchants, who received the metal from foreign countries. The export of uncoined metal was allowed only when accompanied by a certificate given by the bank commissioners. These and many other orders were found insufficient to suppress private trade in precious metals, or private changing at Amsterdam.
In October 1686, Spain devalued silver by about 20% and adopted a dual coinage standard. In 1688, the profits of the Wisselbank dropped considerably, and they did not recover for more than a decade. In 1689, Albert Geelvinck took a seat on the city council, the Dutch West India Company, the Society of Surinam and as commissioner at the Wisselbank; his brother Joan Geelvinck, the former commissioner, became manager of the VOC. In 1693, Joan Huydecoper, one of the Heren XVII, succeeded his brother-in-law Joan Coymans as commissioner. Cornelis Bors van Waveren, a manager of the WIC and of the Society of Surinam, was appointed as commissioner. Around 1700, the top 25 account holders were generating nearly 25% of the business. More and more, the European trade in precious metals concentrated in Amsterdam.
Amsterdam's combination of steady exchange rates, absence of capital controls, and low interest rates allowed its markets to flourish, and conferred something of a "reserve currency" status on the bank florin. Bills of exchange drawn on Amsterdam were a liquid form of short-term credit readily available in most European commercial cities. The bank florin was a reference unit of account for commercial transactions over much of Europe, and top-quality bills payable through the Bank were a reliable and liquid store of value.