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Expansion of the Money Supply with a Fixed Exchange Rate: “Free Banking” in Sweden under the Silver and Gold Standards, 1834 – 1913

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  • Ögren, Anders

    ()
    (Institute for Research in Economic History)

Abstract

This paper studies the role of bank notes issued by the private Enskilda banks in the expansion of the Swedish monetary stock under the classic specie standard maintained during the period 1834-1913. The use of balance sheets has made possible the estimation of more accurate and continuous series of the Swedish money stock and bank reserves. The conclusion of the paper is that the Enskilda banks contributed to Swedish economic expansion and integration, through the provision both of credit and of generally accepted means of payment, beyond what would have been possible for the central bank, constrained as the latter was by specie convertibility requirements. But, the Enskilda banks did not operate according to free banking theory. The re-establishment of the silver standard guaranteed by the central bank was crucial for this process, since it allowed the Enskilda banks to hold central bank notes instead of specie as reserves. The notes issued by the Enskilda banks were accepted as deposits in the banking system but not as reserves. The fact that more Enskilda than Riksbank notes circulated among the public was a result of the law of adverse monetary selection: Gresham’s Law.

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Bibliographic Info

Paper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 541.

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Length: 36 pages
Date of creation: 22 Oct 2003
Date of revision:
Handle: RePEc:hhs:hastef:0541

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Postal: The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden
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Keywords: Classical Silver and Gold Standards; Endogenous Money; Fractional Reserves; Free banking; Money Supply;

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  1. Eichengreen, Barry & Flandreau, Marc, 1994. "The Geography of the Gold Standard," CEPR Discussion Papers 1050, C.E.P.R. Discussion Papers.
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