Banking history: what did the Bank of Amsterdam (1609) and the Bank of England (1694) change?

Imagine: coins from dozens of countries are circulating in the market. One is underweight, another has its silver adulterated. In every deal the coin has to be weighed, checked and argued over. The merchants of Amsterdam at the beginning of the 17th century worked in exactly these conditions.

What problem did the Amsterdam merchants solve?

The Bank of Amsterdam (Wisselbank) began operating on 31 January 1609. It was backed by the city, and its main aim was to solve the practical difficulties merchants faced because of the many different coins circulating in the Netherlands.

The idea was simple: a merchant hands over his coins to the bank, and the bank credits reliable "bank money" to his account. After that, merchants settle with one another through accounts at the bank without carrying coins. According to the sources, the bank soon became a deposit bank that carried out settlements safely, and city rules required large bills of exchange to be paid through this bank.

This is one of the earliest forms of today's non-cash settlement: the money does not physically move, only the entry in the accounts changes.

Why was the Bank of England set up to lend to the government?

In England the situation was different: state finances were weak and war costs were high. According to the Bank of England's own museum, the bank was founded in 1694 and formally established by Royal Charter on 27 July. The idea of setting it up was proposed by the merchant William Paterson.

The bank raised £1.2 million from the public and lent this money to the government. In other words, the Bank of England was born as the government's banker: it kept the government's accounts and lent to it. Until it was taken into state ownership in 1946, it was a private bank owned by shareholders.

The history of banknotes is also interesting from here. According to the bank's museum, banknotes grew out of the receipts that goldsmiths gave their customers for money deposited with them for safekeeping. The Bank of England, too, initially gave depositors "running cash notes" as receipts, and the first notes were entirely handwritten.

Example (prepared by the author, hypothetical figures). Pieter, an Amsterdam merchant, hands over a bag of coins from various countries to the bank. The bank checks the coins and credits 500 units of bank money to his account. Then Pieter has to pay 200 units to a spice seller:

The total amount at the bank did not change; only its owner changed. Today's bank transfer works on exactly the same logic.

Then and now

Conclusion: the Bank of Amsterdam developed the idea of non-cash settlement, and the Bank of England the idea of a bank that works with the state and issues banknotes. Both paved the way for the central banks of the following centuries.