Bank of Amsterdam

Rijksdaalder of the Dutch Republic, 1622

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 (worth 1⁄20 guilder) from a fixed quantity of silver.[17] After 1618, it was able to fix the Dutch rijksdaalder of 25.4 g fine silver at 21⁄2 Dutch guilders or 50 stuivers, guaranteeing a payout of 10.16 g fine silver for each bank gulden deposited.[18]

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 (or 9.82 g per gulden), and later on the ducaton of 30.69 g silver from 60 to 63 stuivers (or 9.74 g per gulden).[19][20]

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 (patagon) of 24.36 g fine silver and the silver rider (ducaton) 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 (5% premium or agio) 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.[21][22][lower-alpha 4]

Lucien Gillard calls it the European guilder (le florin européen),[24] and Adam Smith devoted many pages to explaining how the bank guilder worked.[25]

The modern practice of corporate governance has its roots in the 17th-century Dutch Republic.[26] The first recorded corporate governance dispute in history[27] took place in 1609, between the shareholders/investors (most notably Isaac Le Maire) and the directors of the Dutch East India Company (VOC), the world's first formally listed public company.[28] In 1609, and 1611, Le Maire was the most important account holder at the Wisselbank.[29] 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.[22][30] 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.

Detail of 16-pound silver bar, probably from the mines of Potosi

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.[lower-alpha 5] The bank seems to have hardly supported the Dutch West India Company; but in 1637, the Stadsbank van Lening did so.[32] It provided the Admiralty of Amsterdam and the mint masters in Enkhuizen, Harderwijk, Kampen, Medemblik, Zwolle and Utrecht with funds booked as private loans.[33] 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.[34] In 1647, Amsterdam became a recognized staple market for Spanish silver from the New World.[35] After the Treaty of Munster between Spain and the Dutch Republic, a lot of silver from Cadiz 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. (All countries of Europe began to issue large-size silver coins.) 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.[36] In 1654 quite a few people (10%) were in debt to the Wisselbank after the First Anglo-Dutch War.[37] In 1666, Jan de Neufville (1613–1663) and the Coymans company both deposited sums exceeding 3.5  million guilders with the Wisselbank.[38] In August 1672, the bank was stormed by private account holders who wanted to withdraw their money.[39] 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.[40][41]

On 17 August 1657, the bank began to advance money on loan to the East India Company.[lower-alpha 6] 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.[42] 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.[lower-alpha 7] In 1683, Christoffel van Swoll was appointed as governor-general of the East Indies; he had good connections as his father was an attendant (usher?) 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.[44] Until then few people in China were engaged in coastal and foreign trade, but soon Batavia (and Manila) would become a popular destination for Chinese merchants.

Gezicht op de Dam met het oude stadhuis door Jan Abrahamsz Beerstraaten

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.[45]

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.[46] 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.[47][48]

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.[31][49]

In October 1686, Spain devalued silver by about 20% and adopted a dual coinage standard (plata nueva and plata vieja). In 1688, the profits of the Wisselbank dropped considerably, and they did not recover for more than a decade.[50] 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;[51] his brother Joan Geelvinck (1644–1707), 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.[52] Around 1700, the top 25 account holders were generating nearly 25% of the business.[53] More and more, the European trade in precious metals concentrated in Amsterdam.[54]

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.[55]

A silver ingot

The annual production of silver hardly changed between 1660 and 1720.[56] It grew steadily, with some lapses, in the 1730s and 1740s, as more a recent study shows.[57] After a hundred years the annual production of silver doubled between 1761–1780, according to William Arthur Shaw.[58] The bank's metal stock was increased by large purchases at favorable times or by offering higher prices than the competition.[59]

Following the Spanish War of Succession, Spanish mints inundated Spain with devalued silver. The debts incurred by King Louis XIV of France also contributed to a scarcity of both silver and gold. Consequently, John Law introduced paper money, which remained in circulation until his adversaries attempted a widespread conversion of their notes into precious metals. In 1721, the English and Dutch drew more money from Spain than France did.[60] In 1721, there were 2,918 account holders, the highest number in two centuries of banking history.[61] One of main bankers was Andries Pels, dealing with France as well as Great Britain.[lower-alpha 8] Great Britain moved towards a gold standard (and drew out silver in the form of crowns, shillings and sixpences). Logically, this meant a flow of gold to England and a flow of silver to the Republic, where silver could be purchased relatively inexpensively for transportation to Asia. In Asia, silver fetched a higher price and thus represented more purchasing power there than in the Republic. The relative scarcity of silver in England and the silver glut in the Republic also explain why the English East India Company sought to satisfy its silver needs in the Amsterdam market.[62]

Netherlands, Utrecht, gold ducat 1724, recovered from the VOC ship Akerendam.

From 1713 onwards, the bank reported[lower-alpha 9] on their profits.[lower-alpha 10] After the Treaty of Utrecht, it took several more years before the bank's specie supply returned to a normal level, thanks to an increased supply of Spanish-American silver money. Around 1714/1715, the bank received many old French coins, like the gold pistole.[63] In 1722, the total value of precious metals stored in the bank amounted to 26 million guilders. Pistoles were melted into ingots and sold at a profit. Until 1725, on average, nearly half of the bank profits were attributable to the activities of ten assayers.[64] This was followed by a sharp increase in the supply of specie from Spain in the 1730s, until the impressive sum of over 15 million guilders was reached in January 1737. Unlike at the beginning of the 1720s, when French gold dominated the bank's total metal supply, by the middle of the century it consisted mainly of Spanish specie. The Spanish dollar superseded the gold ducat as the dominant currency of world trade.

During the eighteenth century, the VOC no longer obtained their required gold and silver directly from the Wisselbank but instead obtained it through the mediation of private assayers and mint masters. In January 1711, Anthoni and Johannes Grill (III) were appointed as assayers, specializing in coin testing, but also dealing in copper plates and iron.[65] They supplied the Dutch East India Company, between 1722 and 1731, with silver ingots,[66] which were made from melted coins, mainly Spanish American reales de a ocho or "pieces of eight" and marked with a VOC stamp. (Weight 1960 grams and 98.7% pure silver.[67] [68]) In ten years time the VOC owed 22.5 million gulden to the Wisselbank.[69] The Dutch had very little to offer in Asia but silver and gold. Therefore, the VOC ships had to sail to Asia with silver bars and gold coins to pay for Asian goods. Once in Asia these ingots were melted down and minted again into coins such as rupees, that could be used in the East.[70] In the period 1726–1751, the mint houses produced silver ducatons bearing the monogram of the VOC.[71]

In 1729, Dutch traders were allowed in a neighborhood of Canton, then eight, later Thirteen Factories.[72] Despite some restrictions, silver continued to drive trade through its popularity in Europe. This, combined with a high demand for Chinese tea, silk, cotton, and Chinese ceramics, created chronic trade deficits for European governments, which were forced to risk silver deficits to supply merchants in Asia.[73] Between 1736 and 1745, the VOC borrowed almost f 50 million from the bank.[74] The Wisselbank proved to be one of the most important sources for cash requirements in Asia.[75] In the mid-eighteenth century 85 percent of VOC precious metal (gold and silver) went to India.[76] This reduced the amount remaining in Europe.[77] "The Bank of Amsterdam has for these many years past been the great warehouse of Europe for bullion, for which the receipts are very seldom allowed to expire, or, as they express it, to fall to the bank" as Adam Smith wrote. According to Nicholas Magens, the French and the Dutch gave more gold for silver than their neighbors.[78]

Forged Dutch ducats secretly minted in their millions at the Saint Petersburg Mint became widely known from 1735. In 1746, the mint masters asked for strict measures to be taken with regard to all the bad small coins (or change); they were supported by the bankers and cashiers.[79] In 1747, and 1750, Maria Theresa reduced the metal content of all her coins.[80][81] The commissioners sanctioned, by the decree of 27 June 1749, the private trade in specie, and even ordered that the regulation of the values of the coins had to be fixed by commercial agreement.[31][49] From 1750, Frederick the Great attracted precious metals, used for producing Prussian thalers with a reduced silver content, Friedrich d'or and fake coins in an attempt to compete with the Austrian and Dutch trade coin. The silver required for the minting of inferior money was largely obtained from Amsterdam and Hamburg.[82] The mint masters in Prussia imported each year 100–200 tons of silver throughout the Seven Years' War, which was paid for in Amsterdam mainly by bills of exchange, and in Hamburg by Kriegsgeld."[83] Part of it was used to mint 40 million new coins, which were put into circulation in Saxony and Silesia, but also in Hungary, Poland, Lithuania and Courland.[84] In 1754, Ferdinand VI of Spain prohibited the circulation in America of all money coined in Spain; no doubt exchanging coins became an art.

In 1755, Essay on the Nature of Trade in General was published twenty years after the death of the author Richard Cantillon.

But as silver can be combined with Iron, Lead, Tin, Copper, etc. which are not such scarce Metals and are mined at less expense, the exchange of Silver was subject to much fraud, and this caused several Kingdoms to establish Mints to certify by a public coinage the true quantity of silver that each coin contains and to return to individuals who bring bars or ingots of Silver to it the same quantity in coins bearing a stamp or certificate of the true quantity of Silver they contain. The History of all times shows that when Princes have debased their money, keeping it at the same nominal value, all raw produce and manufacturers have gone up in price in proportion to the debasement of the coinage.[85]

The Bank of Amsterdam shut twice a year (in January and July) for two weeks to balance its books; the account holders were expected to come and check their balance; for other business, they had to pay a fee.[86] In 1763, the bank was closed from Friday 15 July until Friday 29 July.[87] The financial crisis at the end of July 1763 was triggered when Leendert Pieter de Neufville had to pay his obligations to Johann Ernst Gotzkowsky.[88] On Monday 1 August, the Wisselbank refused to transfer any money and De Neufville suspended payment the next day.[63] The shocking failure of De Neufville caused the market to contract its lending to bankers; bankers to stop accepting bills; and creditors to stop lending on the security of bills.[89] Their reaction caused financial contagion, a "run behaviour, whereby fears of widespread financial collapse lead to the withdrawal of funding from banks and other financial institutions."[90][91] The immediate victims were a group of independent, private "cashiers". (The deposits in the Wisselbank were virtually unenforceable, but everyone was free to demand the money that he had entrusted to his cashier.) The deferrals resulted in an international banking crisis in Amsterdam (38 bankruptcies), Hamburg (90–97), Berlin (33),[92] Danzig, Leipzig, Breslau, Stockholm, and London.[93][94] The bankers became unwilling to extend credit to one another,[95] so that the failure of Neufville led to a general loss of market funding.[96] On August 4th, six prominent Amsterdam bankers proposed the idea of depositing their silver and gold bars at the Wisselbank, opting for this approach over using coins.[97][98] On 5 August, the banks were closed and all bills drawn on Amsterdam were returned without acceptance or "protested". A run on the cashiers (bank tellers) followed on Saturday, 6 August.[99] The Bank of Amsterdam and the Stadsbank van Lening were open until two o'clock that night to accept gold and silver, which had never happened before. The Bank of Amsterdam's improvised solution to the crisis was for the bank to expand its receipt window (much like a modern repo facility) to include unminted silver bullion, a form of collateral that was in abundant supply after the Prussian demonetization. The Wisselbank introduced a new lending window that accepted bullion between 4–15 August. The amount of bullion went up in the next few weeks.[100] After the Seven Years' War the stock of precious metals held by the Wisselbank was never as large as in the years 1763–1765, that is, 31 million guilders, of which no less than 25 million were made up of Spanish specie, and sent from Hamburg.[101] In the course of the 18th century, English and French competition on the Cadiz trade increased considerably so that the Dutch merchants, who used to occupy the first place, were pushed back to the third place. In January 1773, after the credit crisis of 1772, the Wisselbank funded a city-operated loan facility for distressed merchants.[102]