The Bank of Amsterdam is founded

At the start of the seventeenth century Amsterdam was becoming the busiest trading city in Europe, and its money was a mess. Coins from the many mints of the Dutch provinces and from all over Europe passed from hand to hand, many of them worn, clipped or deliberately struck too light; Adam Smith later reckoned that the city's currency was worth about nine per cent less than good new coin. A merchant who was owed money on a bill of exchange, the written order to pay that carried long-distance trade, could not know what coins he would get, and the private cashiers who handled most payments passed on the light coins and kept the heavy ones. When the States General ignored a plan for public banks in every trading town, the city council of Amsterdam acted alone: on 31 January 1609 it founded an exchange bank, the Wisselbank, modelled on the public bank of the Rialto in Venice.

The bank sat in the Town Hall on the Dam. Merchants brought it their coins; it took foreign and worn coins at the silver or gold they really contained, not at their face value, and wrote that amount into its ledger as 'bank money'. From then on they paid each other by transfer: the payer, or his agent, came to the bank and had the sum moved from his account to the payee's, without counting or carrying a single coin, and until 1683 without a fee. The city guaranteed the deposits, creditors could not seize them, the bank issued no notes, and by its rules it was not to lend. To make sure merchants used it, the city ordered that every bill of exchange of 600 guilders or more be paid through the bank, and banned the cashiers (they were allowed back in 1621). After its first year the bank held some 925,000 guilders in coin; it counted 708 account holders in 1611 and 1,202 in 1620.

Because a guilder in the bank always meant the same weight of silver while the coins in the street kept getting worse, bank money came to be worth more than cash. From 1645 the bank allowed for it openly, and by the late 1640s dealers traded the two against each other every morning in front of the Town Hall; in the long run the premium, called the agio, usually stood at around five per cent. The bank came through the fire that destroyed the old Town Hall in 1652, moved into Jacob van Campen's grand new Town Hall, inaugurated in 1655, and in June 1672, when France invaded the Republic, paid out a third of its deposits in two weeks without stopping; some of the coins that came out of its vaults were still scorched from the fire twenty years before. In 1683 it began to give depositors a receipt for their coins, the right to take the same coins back within six months for a small fee, and the old right to turn any balance into coin quietly lapsed. From then on bank money was valued for itself, backed by trust in the bank, which is why the economists Stephen Quinn and William Roberds call it the first central bank money.

For more than a century the bank guilder was a money in which merchants across Europe reckoned and settled their bills, and other cities copied the idea: Middelburg, Delft and Rotterdam in the Republic, Hamburg in 1619, and later, in their own ways, Stockholm and London. Adam Smith described the bank at length in The Wealth of Nations, sure that every guilder of bank money had its guilder of coin in the vaults, guarded by the city's oath. In fact the bank had long lent quietly to the East India Company (the VOC) and to the city, and during the Fourth Anglo-Dutch War of 1780 to 1784 it lent so heavily to the failing company and to the city that by 1783 most of its assets were loans.

When the French revolutionary army arrived in 1795, the new rulers made the bank's accounts public, and the agio, the market's measure of trust, fell to nearly minus thirty per cent. The bank lingered on until the Nederlandsche Bank, founded in 1814, took its place, and it closed in 1820. Central bankers still draw two lessons from its story: money kept in accounts and paid by transfer, with a public institution caring every day for the value of the unit, is what a central bank does; and such money lasts only as long as people trust what stands behind it.