SSE/EFI Working Paper Series in Economics and Finance
No 541:
Expansion of the Money Supply with a Fixed Exchange Rate: “Free Banking” in Sweden under the Silver and Gold Standards, 1834 – 1913
Anders Ögren ()
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.
Keywords: Classical Silver and Gold Standards; Endogenous Money; Fractional Reserves; Free banking; Money Supply; (follow links to similar papers)
JEL-Codes: E42; E51; N13; N23; (follow links to similar papers)
36 pages, October 22, 2003
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