Working Paper Series,
Sveriges Riksbank (Central Bank of Sweden)

Abstract: Private money creation lies at the heart of currency competition due to seigniorage rents that are an important contributor to banks’ franchise values. However, it undermines the role of central bank in money provision and has been historically a contentious issue. As shifting from private to public money may come at a cost of bank disintermediation and affect economic growth, such a swap should be well-planned to minimize its costs. In this paper, we study the transition from private to public money in a historical context. The 1897 banking law in Sweden granted the banknote monopoly to the Swedish central bank. To facilitate the shift, the central bank provided preferential liquidity support to formerly note-issuing private banks. Drawing on newly digitized monthly archival data, we show that this liquidity provision played a critical role in shaping private banks’ performances during the transition. Once the support started being withdrawn, affected banks experienced a 23% drop in profitability. No signs of bank disintermediation are found.

Keywords: Money and Banking; Inside Money; Outside Money; Bank Profitability; Bank Lending; Banknote Monopoly

JEL-codes: E42; E50; G21; G28; N23

Language: English

51 pages, August 1, 2025

Full text files

no.-454-central-bank...ency-competition.pdf  Full text

Download statistics

• Sveriges Riksbank (Central Bank of Sweden)
• Ordering Working Papers
• Home page for this series

Questions (including download problems) about the papers in this series should be directed to Lena Löfgren ()
Report other problems with accessing this service to Sune Karlsson ().

RePEc:hhs:rbnkwp:0454This page generated on 2025-09-05 11:40:41.