Death of a Reserve Currency

The Dutch bank florin was the dominant currency in Europe over much of the seventeenth and eighteenth centuries. The florin, a fiat money, was managed by an early central bank, the Bank of Amsterdam. We analyze the florin’s loss of “reserve currency” status over the period 1781–92, using a new reconstruction of the Bank’s balance sheet. The reconstruction shows that by 1784, accommodative policies rendered the Bank policy insolvent, meaning that its net worth would have been negative under continuation of its policy objectives. Policy insolvency coincided with the Bank’s loss of control over the value of its money.