Sweden's Riksbank: the oldest central bank still running

On 17 September 1668 the government of Sweden, ruling for the boy king Karl XI, handed what was left of the country's first bank over to the Riksdag, the parliament of the four Estates. Renamed Riksens Ständers Bank, the Bank of the Estates of the Realm, it belonged to three of them: the nobility, the clergy and the burghers. The peasants wanted nothing to do with it. Its board was chosen by the Estates, not by the king, so that the crown could not simply help itself to the depositors' money. The Riksdag closed on 22 September, the date to which the bank's rules were backdated and the day the bank still keeps as its birthday, and on 1 October the last papers were signed. Since 1867 it has been called Sveriges Riksbank, and it is the oldest central bank in the world that is still at work.

The new bank was built from the ruins of an older one. Sweden had been on a copper standard since 1624: its mines, Falun above all, produced two thirds of Europe's copper, and from 1644 the state also struck big copper plates as money, the largest of which, worth ten daler, weighed almost 20 kilograms. In November 1656 King Karl X Gustav gave Johan Palmstruch, a merchant from Riga who had lived in Amsterdam, home of Europe's model exchange bank, a charter for an exchange bank and a loan bank in Stockholm. Stockholms Banco opened on 29 July 1657. Merchants left their heavy plates there and paid each other by transfer, and the bank soon lent out the deposits as well. When the government cut the copper in new plates in 1660, depositors rushed to take their old, heavier ones back. Palmstruch's answer, in the summer of 1661, was the kreditivsedel, a printed note that promised to pay the bearer a sum in coin on demand. Unlike earlier receipts it was not tied to any deposit; it rested only on trust in the bank. These were the first banknotes in Europe.

They were a success, then a disaster. The bank now lent in notes instead of coin, and in 1663 the crown, the chancellor Magnus Gabriel De la Gardie and the tar company alone borrowed nearly a million daler in copper money. By September the bank had almost no cash left, the notes changed hands at 6 to 10 per cent below their face value and prices rose: Sweden's first inflation. The Council of State opened an inquiry in October 1663, the Riksdag of 1664 ordered the loans called in and the notes withdrawn, and the winding-up was finished early in 1668. In July 1668 the Svea Court of Appeal dismissed Palmstruch and ordered him to make good the losses or be put to death. He was spared, but stayed in prison until 1670 and died in 1671.

The bank of 1668 kept much of Palmstruch's design but not his notes, which the Estates banned. Its rules told it to keep the country's coin 'at its right and fair value', a duty that stayed in its law until 1897. It opened in rented rooms in the palace of the late chancellor Axel Oxenstierna in Stockholm's old town, and in 1680 moved into a house of its own at Järntorget, designed by Nicodemus Tessin the Elder: the first building in northern Europe made only for banking, which it used until 1906. Its independence was soon tested. Karl XI, ruling as an absolute king, made it clear in 1689 that the bank answered to him too, and his son Karl XII borrowed from it to pay for the Great Northern War. Paper money came back by the side door, as bank receipts that people passed from hand to hand, until the bank itself issued transfer notes from 1701.

For two centuries it was above all a bank that lent to the nobility and the state. When the Riksdag of the Estates was abolished in 1866, it took the name Sveriges Riksbank in 1867, and an act of 1897 made it the only issuer of banknotes from 1904 and turned it into a modern central bank. Its early history holds two lessons that central banks still live by: paper money is worth only as much trust as stands behind it, and the bank that issues it should be kept at arm's length from the government's needs. Britannica dates the history of the modern central bank from its founding; the Bank of England followed in 1694. For its 300th anniversary, in 1968, the Riksbank founded the Prize in Economic Sciences in Memory of Alfred Nobel, first awarded in 1969.