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• Banking In Germany.
• Chapter I.: Non-issuing Credit Institutions.
• Chapter II.: German Banks of Issue.
• History of Banking In Austria-hungary.
• Chapter I.: The Austrian National Bank.
• Chapter II.: Austrian Joint-stock Banks and Banking Associations.
• Chapter III.: Hungarian Joint-stock Banks and Private Credit Institutions.
• Appendix to Banking In Germany and Austria-hungary.
• II.: Statistics of Banking In Austria-hungary.
• Banking In the Netherlands.
• Introduction.
• Chapter I.: Era of Exchange Banks.
• Chapter II.: Period From 1814. Modern Dutch Banking.
• Chapter III.: Period 1814-1863. the Netherlands Bank.
• Chapter IV.: The Netherlands Bank, 1864 to 1895.
• Chapter V.: Banks of Issue In the Dutch Colonies.
• Chapter VI.: “cashiers,” Joint-stock Banks, and Private Bankers.
• Banking In the Scandinavian Nations.
• Part I.: Banking In Denmark.
• Chapter I.: History Previous to the National Bank.
• Chapter II.: The National Bank During the First Half of the Nineteenth Century.
• Chapter III.: Private Banks.
• Part II.: Banking In Sweden.
• Part III.: Banking In Norway.
• Banking and Money In Japan.
• Part I.: The Banking System.
• Chapter I.: Common Banks.
• Chapter II.: The National Banks.
• Chapter III.: The Yokohama Specie Bank. ( Shiokinginko. )
• Chapter IV.: The Bank of Japan. ( Nippon Ginko )
• Chapter V.: Land Mortgage Banks.
• Part II.: The Currency of Japan.
• Chapter I.: The Old Coinage System.
• Chapter II.: The New Coinage Period.
• Chapter III.: The Paper Currency.
• Chapter IV.: Readjustment of the Public Debt.
• Chapter V.: The Future Money Standard.
• Appendices.
• Appendix D.: National Debt In Japan. (from the “british Economic Association Journal” of June, 1895.)
• Banking, Currency and Land Tenure In the Chinese Empire.
• I.: China’s Currencies.
• II.: Chinese Banking: Ancient and Modern.
• III.: Land Tenure and Taxation In China.

CHAPTER III.

PERIOD 1814-1863.

THE NETHERLANDS BANK.

SECTION I.

ITS LEGAL POSITION, ORGANIZATION, AND OBJECTS.

THE period of time which we propose to treat in this section does not readily lend itself to division into shorter periods. On superficial examination it is true such a division would seem advisable, as within the first fifty years of the Bank’s existence some very important changes took place, such as the renewal of the Bank’s charter, a repeated increase of capital, and the adoption of greater publicity in its dealings. But these considerations are all outweighed by the fact that until the end of 1863 the Bank was a purely local (i. e., Amsterdam) institution, while in 1864 it extended its operations and became a national Dutch institution. Before speaking about the working of the Bank in its first fifty years, it is necessary to explain its legal position, its organization, and its objects.

The Bank’s affairs were first regulated by the decree of King William I., of March 25, 1814, which to a great extent is identical with the already mentioned draft bill of 1802. The Bank’s charter was renewed by royal decree of August 21, 1838. The two decrees have but few differences.

The Bank was a joint-stock company. In 1814 (Art. 7), its capital was fixed at 5,000,000 guilders (divided into 5000 registered shares of 1000 guilders each); in 1838 (Art. 6), at 10,000,000 guilders—an amount of capital which really existed from 1819. The shares were transferred by a special note entered in the shareholders’ register in presence of the Bank’s directors (1814, Arts. 9 and 10; 1838, Arts. 8 and 9). Selling shares for future delivery was, in 1814, forbidden (Art. 11). In 1838, the interdict was not renewed.

THE METHOD OF MANAGEMENT.

The management of the Bank was in the hands of a president, five directors, and a secretary. The president and the secretary were appointed by the King as permanent members (1814, Art. 49; 1838, Art. 40). According to the decree of 1814 (Arts. 49-51), the King had to appoint for the first time two of the five directors. The other three were selected by the King from six persons nominated by the Bank commissioners, together with the president and the two directors already appointed by the King. Under the decree of 1838 the King appointed for the first time all the five directors. In later years the King had to appoint five directors out of the ten persons nominated by the commissioners together with the directors (1814, Art. 52; 1838, Art. 41).

The decree of 1814 (Art. 47) required that the directors should be shareholders of the Bank, that they should live in Holland, and be at least for six months registered as holders of ten shares of the Bank stock. By the decree of 1838 these requirements were repeated, and it was further prescribed that each director should acquire another five shares before entering on his functions. By the royal decree of June 9, 1852, it was ordered that each director on assuming his functions must be the registered holder of fifteen shares. He was obliged to keep these fifteen shares during his term of office. Every six months (1814, Art. 48), and later on, every year (1838, Art. 39), one director had to resign, who at first was designated by lot and later by seniority. The retiring director could be re-elected.

The president and the directors were obliged to have their domicile in Amsterdam. Only on urgent danger and by a special royal order were they allowed to change their residence (1814, Art. 38; 1838, Art. 29). The president, the directors, and the secretary received a share in the profits, specially fixed by the King (1814, Art. 40; 1838, Art. 32). The president and the directors were sworn before entering on their functions (1814, Art. 42; 1838, Art. 33). They had to be guided by legal and reglementary orders, and in conformity with special instructions given by the King (1814, Art. 39; 1838, Art. 30). They were not responsible for any loss resulting from their licensed operations (1814, Art. 41; 1838, Art. 32).

The whole body of the shareholders was represented by a committee of fifty of the largest of their number. At the end of the first year these fifty had to elect, by an absolute majority, six shareholders to act as commissioners, and they had to fill all vacancies in the same way (1814, Art. 53; 1838, Art. 42).

These commissioners had to be registered holders of six (from 1838-78) shares at first, on the day they were elected, and later for the last six months. Every year, the third part of the commissioners had to retire, but they could be re-elected.

It was the duty of the commissioners to examine the balance-sheet, which had to be submitted to them at the end of every year. The bookkeepers and the cashiers had to confirm by oath the correctness of the balance-sheet. If everything was in order, the commissioners had to liberate the president and the directors from their responsibility. The commissioners had also to declare the dividend according to the reports of the president and the directors (1814, Art. 55; 1838, Art. 44).

Amsterdam was the seat of the Bank, but the president and the directors were allowed to extend the Bank’s operations to Rotterdam, Dordrecht, and all the other principal towns of Holland, either by special correspondents or by delegates. The decree of 1838 (Art. 34) provided for the establishment in Rotterdam of a branch (bij-bank), and the president and the directors had to make to the King proposals to this effect within three months after the decree came into force.

THE BANK’S MONOPOLY OF NOTE ISSUES.

The Bank, in 1814 and 1838, being chartered for twenty-five years, enjoyed many privileges. First of all, article three of the decrees of 1814 and 1838 must be mentioned. This article says that during the time the Bank is chartered, no other institution shall be allowed to issue bank notes. The Bank, therefore, had a monopoly of note issues. Its other privileges were also exclusive.

A great number of such favors were granted to the Netherlands Bank by decree of March 25, 1814. In the introductory notes to this decree it is expressly stated:* “Qu’une telle institution mérite sous tous les rapports d’être protégée par des prérogatives extraordinaires.”

Total exemption from taxes was assured by article fifty-nine to the capital, the shares, the profits, and the dividends. Article sixty exempted “toutes quittances, récépissés ou billets de banque, à émettre par la Direction de la Banque, ainsi que toutes autres assignations ou effets comptables, les livres et les régistres” from stamp duty and registry duty (droit d’enrégistrement), “afin de favoriser cette institution et la rendre plus utile et plus profitable au public.” Article sixty-one ordered that the greater part of the account current balances could not be attached by legal process. Article sixty-three urgently recommended to the civil and military authorities, especially to the Amsterdam Town Council, “the protection and the security of the Bank as well as the defence of its privileges and preferences.” Article twenty-seven exempted the loan deeds from all taxes, with the exception of the stamp duty. Each shareholder also enjoyed special privileges. In case of increase of capital, the shareholders had the first claim to subscribe for new shares (Art. 14). In regard to loans and discounts, they had precedence over the non-shareholders, up to the amount of their holdings of stock (Art. 16). The shares could be seized only in case of the execution of a valid judgment, or on the failure of the holder (Art. 18). They were to be taxed at their nominal value for the succession duty as well as for all other duties and taxes (Art. 19).

THE BANK’S FUNCTIONS, PRIVILEGES, AND RESTRICTIONS.

Most of these privileges—except the monopoly of the issue of bank notes—were not renewed by the decree of August 21, 1838, and the few which remained were: (1) The right of precedence of shareholders in the subscription to new shares in case of increase of capital (Art. 12); (2) the exemption of loan deeds from registry duty (Art. 20); (3) the exemption of receipts, quittances, assignations, bank notes, and books of the Bank from stamp and registry duties (Art. 48); (4) the special obligation of the civil and military authorities, especially of the Amsterdam Town Council, to protect the Bank (Art. 50).

The orders concerning the operations of the Bank most conclusively show progress as compared with the organization of the former Wisselbanken, though a certain reticence, especially in the decree of 1814, is still observable. The decree of March 25, 1814, fixed the scope of the Bank’s activity in the following way: The Bank could (1) discount bills of exchange (Art. 20, No. 1); (2) grant loans on stocks and merchandise (Art. 20, No. 2). Loans could be granted on security of entries in the Dutch Great Ledger and on certificates thereof having the visa of the Great Ledger affixed, on home stocks, and on merchandise lying in Holland (Art. 23). Loans on the shares of the Bank (Art. 17), on real property, on ships, and on foreign stocks were not allowed (Art. 25). Loans were granted up to the amount which the directors deemed advisable and for a period not exceeding three months (Art. 23); they had to be confirmed by a notarial deed (Art. 26), which was only subject to stamp duty (Art. 27). The rate of interest fixed was, at the outside, at five per cent. per annum (Art. 24). (3) The Bank could buy and sell specie and bullion and have it coined and recoined (Arts. 20 and 28). (4) It could receive on account current money of the Government or public authorities (Art. 20).

The Bank was not allowed (1) to buy, to barter, or to acquire any merchandise or stocks (Art. 21), except unredeemed pledges, the buying of which appeared necessary to prevent losses (Art. 22); (2) to take part either directly or indirectly in any home or foreign trade (except the trade in specie and bullion), nor in any shipping, fishing, manufacturing, insurance, commercial, agricultural, or other enterprise (Art. 21); (3) to acquire real estate not necessary for its own business.

The Bank made payments in cash or in bank notes. We find bank notes of 1000, 500, 300, 200, 100, 80, 60, 40, and 25 guilders (Art. 29). At any time, except Sundays and holidays, the Bank had to redeem notes in cash if it were demanded (Art. 30). The holder of a bank note had to be considered its legitimate owner, and payment could not be refused to him. In case of suspicion or on a written request of the owner of lost or stolen bank notes, the Bank could have the note receipted and signed by the holder (Art. 31). The total amount of notes to be issued was to be regulated by the Bank’s actual capital and funds, inclusive of all loans granted, of discounts, and of specie and bullion on hand, but exclusive of the current account balances (Art. 32). The maximum amount of notes to be issued on that basis was at first fixed by the King, who also later on, from time to time, fixed the maximum according to the suggestion of the president and the directors.

The decree of 1838 (Art. 14) contained only the following changes: Discounting was no more limited to bills of exchange; the Bank could discount other commercial paper, registered and issued to order, if provided with two or more satisfactory signatures (Art. 15). The securities on which loans could be made was now extended so as to include foreign public funds negotiated in Holland and quoted at the Amsterdam Exchange (Art. 18). The rate of interest was no more limited, and loans were contracted in accordance with the rules given by the Netherlands Code of Civil Law (Art. 20). On accounts current, the money not only of the Government and other public authorities, but of private individuals, could be received (Art. 15). At last, loans on foreign coins and on bullion at a reduced rate of interest were permitted as a new branch of business (Art. 15, No. 5).

By royal decree of January 9, 1852, loans were allowed on all foreign stocks, obligations, bills of debt, and shares, exclusive of all bonds issued by those banks and other private companies, societies, or corporations which were neither established in Holland nor in the Dutch colonies.

By the same decree the Bank was allowed to invest its reserve fund in Dutch public funds, in mortgages, and in shares of the Bank—the interest and dividends on these being reckoned in the general revenue. The Bank’s shares could only be acquired for this purpose if they were to be had at or under the value of the last balance.

In 1852, also, the early injunctions of secrecy relative to the Bank’s transactions were withdrawn. According to the modern way of looking at things, a well-established bank has nothing to fear from publicity. Holland had in the eighteenth century bitter experience of the disadvantages of secrecy concerning bank operations. The decree of March 25, 1814, nevertheless, had ordered, in article fifty-eight, the strictest secrecy concerning bank operations, and especially concerning discounts, loans, current accounts, and the number of shares held by a shareholder. In the beginning of 1838, merchants did not seem to hold essentially different views. On inquiry by the Government, the Amsterdam Chamber of Commerce, on February 20, 1838, expressed the opinion that the shareholders should receive a report on the Bank’s operations at the end of every year. But the Chamber considered other publications concerning the Bank injurious. The publication of the notes in circulation to the cash on hand at the Bank might “influence in a disadvantageous manner the confidence of the holders of the notes.” The decree of 1838 (Art. 47) did not even permit of the Bank’s operations being communicated to the shareholders, but enacted article fifty-six of the decree of 1814.

INCREASED PUBLICITY OF OPERATIONS.

The Bank directors themselves finally procured the alteration of this decree. At the meeting of April 7, 1851, the directors declared themselves to the effect that it would be desirable to make a few communications to the public concerning the position of the Bank, in order to increase the Bank’s sphere of action. The Bank commissioners strongly opposed this suggestion, but later on most of them changed their opinion. In a report to the King on April 27, 1852, a change of article forty-seven was proposed, with the approval of the commissioners, only one commissioner having dissented and resigned.* The Government acceded to this recommendation, and decreed, on June 9, 1852, that the board of directors should publish on the first of every month, in the “Staats Courant” (i. e., State advertiser), the amount of bank notes in circulation, of current account balances, and of specie and bullion on hand. Besides this, the amount of capital and of the reserve funds had to be announced, together with the dividend. Further publications were left to the board of directors after first consulting the commissioners. For the rest, strict secrecy was still the rule.

By this decree at least publicity as to the chief features of the Bank’s business was made possible, and information in regard to the preceding years was shortly obtainable in the “Staatkundig en staathuishoudkundig jaarboekje” (i. e., statistical annual) of 1852, published by the former secretary and later president of the Bank, W. C. Mees. This publication was continued and completed by Moltzer, “Bijdrage tot de geschiedenis der Nederlandsche Bank in cijfers” (contributions to the history of the Netherlands Bank in figures). Detailed yearly reports have been given only since 1864. Another mistake, which certainly injured the Bank’s business, was the exclusion of loans on foreign stocks, as decreed in 1814. This mistake, as already shown, was partly corrected in 1838 and 1852. The original restrictions on the discounting of bills of exchange and on accounts current of public means, also were a blunder, and unduly limited the Bank’s operations.

THE BANK AND THE GOVERNMENT.

Certain weak points are further to be found in the position of the Bank toward the Government. It was natural that the Government should reserve to itself a certain influence over the Bank, to which so many privileges had been given; but the sacrifice thus effected of the entire independence of the Bank may one day prove to have been a costly one.

The influence of the Government first showed itself in regard to the appointment of officers. Furthermore, the Government had some influence as an owner of shares. By the decree of 1814 (Art. 8), the Government decided to subscribe for 500 shares, and reserved to itself 500 shares more, equal to one-fifth of the nominal capital. In fact, the Government became the owner of 1000 shares.* By decree of March 31, 1847, this partnership between the Bank and the Government was terminated. The Government, moreover, reserved to itself, by the decrees of 1814 and 1838, article one-half, the right of revocation of the Bank’s privileges. It is true that for this a petition signed by three-fourths of the shareholders was necessary, and that without such a petition the revocation of the charter was possible only if the Bank should transgress the legal and reglementary orders.

But the ambiguous wording of every decree made it always possible to use pressure on a non-complaisant board of directors. So far as I know, this has not been done in regard to the Netherlands Bank. The Java Bank, however, has felt the sting of such a possibility, as we shall see later on.

LIMITS OF THE BANK’S INDEPENDENCE.

According to the decree of 1814 (Art. 62), the Bank’s charter could be changed by a special law in accordance with the national interests and with the condition of the Bank’s prosperity. But the shareholders’ privileges, the directors’ liberty of action, and the free employment of the Bank’s funds were not to be infringed. If circumstances or the Bank’s operations should make it necessary, the authorities were entitled to order the reduction of the reserve fund, or even the entire dissolution of the Bank. Before this dissolution, however, the board of directors had to deliver their opinion. At that time the kingdom was still sovereign, and consequently had the entire legislative power. The constitution of August 24, 1815, made the Netherlands a constitutional monarchy, and the dangers of these orders were very much lessened. In 1838 (Art. 49), it was declared that changes in the Bank’s regulations could be effected only on the motion of the directors and commissioners or in agreement with them.

With respect to the increase of capital, the Bank was not independent. As a rule (1814, Art. 12; 1838, Art. 8), an increase of capital was ordered only on the request of the board of directors and the commissioners; but the decrees of 1814 (Art. 13) and 1838 (Art. 11) reserved the right of increasing the capital even without such a request to the King if he found it to be for the national interest. By this means it was possible that the Bank should be forced to increase its capital, while the state of its business did not demand it. The capital could, however, not be increased over twenty million guilders (1838, Art. 11). There was a further element of danger in the fact that it rested with the Government to fix the maximum amount of the note issue on the request of the president and the directors. The principal danger here lay in the possibility of the Government’s opinion not coinciding with the experienced judgment of the management. The Government might occasionally prohibit at the wrong time the increase of the maximum petitioned for, but so far as known to me, this has not happened in the Netherlands. At first the demand for bank notes was not great, and it was not before 1847 that a maximum was fixed.

The prohibition of giving blank credits in current accounts must, on the other hand, be considered a mainstay for the Bank’s independence. Vissering (page 38) attaches special importance to this order and holds the opinion that it ought to be written in large letters in every bank charter.

THE AMOUNT OF NOTE ISSUES.

Respecting the issue and covering of bank notes, the decrees of 1814 (Arts. 32 and 33) and 1838 (Arts. 25 and 26) were not at all specific. The amount of the notes to be issued was to be regulated by the Bank’s actual capital and funds, inclusive of all loans granted, of discounts, and of specie and bullion on hand, but exclusive of current account balances (1814, Art. 32; 1838, Art. 25). This regulation was, according to Vissering (page 6), taken word for word from the bill of 1802, mentioned before. In this order, hardly anything was clear. It was not obvious whether the share capital, the loans granted, the discounts, and the specie and bullion on hand, together, or the three latter only, should form the limit which should fix the proportion between the bank notes and the Bank’s funds.

A fixed rule for the management of the Bank was thus wanting. The Government might, nevertheless, have cleared away these difficulties by fixing a maximum for note issues, but this it did not do for three decades.

It was in 1847 that the first regulation was issued concerning the note maximum. The Minister of Finance (who perhaps had been startled by the experiences of the Java Bank) asked the board of directors on July 7, 1847, to report on the state of affairs. They were chiefly requested to examine whether the fixing of an absolute maximum of bank notes or a certain proportion between this maximum and the stock of bullion was preferable. The board of directors recommended on August 2, 1847, the fixing of the maximum note issue at three times the share capital, plus reserves (then 17,250,000 guilders), i. e., at fifty-one millions.

The Government considered this proposal for regulating the maximum according to the Bank’s funds as risky, and recommended instead the fixing of the maximum at two and a half to three times the amount of bullion on hand, after deducting the current account balances, but not to go beyond fifty-one million guilders.

EXPANDING THE CIRCULATION.

The board of directors pronounced against this proposal, because of the changes in current account balances (August 31, 1847). The Minister of Finance on September 11th yielded so far as to declare it sufficiently safe if the maximum was fixed at two and a half times the value of bullion, plus the current account balances. Besides this, the note issue was not to exceed fifty-one million guilders.

The board of directors by verbal negotiation succeeded in convincing the Government of the fact that the Bank needed greater liberty of action. A royal decree on October 5, 1847, ordered the maximum to be fixed at fifty-two million guilders, but the board of directors was advised to take into consideration the state of the cash and the bullion reserves, while observing the general rule that 250 guilders in notes had to be covered by at least 100 guilders in specie or bullion. This was a cash security of forty per cent., and may have answered the requirements of the times. Considerable receipts of silver at the Bank, resulting from the demonetization of gold (by the law of November 26, 1847), and an increase in the circulation of bank notes, were the reason why the board of directors, on October 18, 1848, petitioned for permission to issue bank notes for more than fifty-two million guilders, while keeping a metallic security of forty per cent.

The amount in excess was to be fully covered by bullion. The Minister of Finance opposed this petition, and the board of directors renewed their request on February 8, 1849, because the circulating amount of bank notes very nearly approached the maximum. The Bank changed its proposal on February 13, 1849, in consequence of the Minister’s hesitation in the matter, and only demanded that the issue of bank notes fully covered should not exceed the fixed maximum by more than twenty millions. On February 15, 1849, a royal decree raised the maximum note issue to seventy-two million guilders, the first fifty-two millions of which had to be covered by forty per cent. and the remaining twenty millions fully by specie and bullion on hand.

Soon another change became necessary. After prolonged negotiations the Government had made arrangements with the Bank on October 22, 1849, so that the latter was to exchange all gold and silver coins, which had to be demonetized according to the currency reform of 1847, for new silver coins or for “muntbiljetten.”* The Bank was to keep these old coins from the day of their withdrawal from circulation until the Minister of Finance should dispose of them in another way. In default of this disposal, the Bank had to advance to the Government twenty-four million guilders at the rate of interest of two per cent. for the five and ten guilder pieces received, and a further thirty millions in case the gold coins should be withdrawn from circulation before the issue of “muntbiljetten.” In order to carry out this agreement (the later supplements to which have been passed over), the board of directors, on October 5, 1849, petitioned the Government to increase the maximum of bank notes by fifty-four million guilders, i. e., to 126 millions. This request was partly complied with on October 18, 1849. The maximum was fixed by the Government at 122 million guilders; for the first fifty-two millions, a metallic security of forty per cent., and for the remaining seventy millions a full metallic security was ordered. In accordance with the agreement mentioned above, the mortgaged bullion was to be reckoned in the stock of specie and bullion.

In 1855 a further raising of the maximum took place, occasioned by the increased demand for credit which preceded the crisis of 1857. The Bank considered itself at this time hampered by the prescribed maximum of note issue, and petitioned on October 13, 1855, for entire abolition at a fixed limit. The board of directors thought it sufficient to order that all bank notes exceeding a certain amount should be fully covered by bullion. The Minister of Finance believed that the abolition of the maximum could only be effected by the publication of a decree of amendment of the already published decree in the “Staatsblad,” and doubted whether this publicity would answer the Bank’s wishes. He therefore wanted to give the Bank an opportunity for fixing a maximum, so as to settle the question without publicity. The board of directors preferred this secret arrangement, and did not see any danger in fixing a maximum if only it was sufficiently high. The Bank therefore proposed to the Minister on October 25, 1855, to fix the maximum at 150 million guilders. Two days later, on October 27, 1855, the maximum was raised by royal decree to 150 million guilders. The first fifty millions to be covered by forty per cent., the following fifty millions by sixty per cent., and the remainder entirely by specie and bullion.

The crisis of 1857 obliged the Bank, which feared that the balances from current accounts would quickly diminish, to demand on October 16th that the first one hundred millions only should be covered by forty per cent. A royal decree of October 23, 1857, sanctioned this.* No further modifications were made till 1863, when the Bank’s affairs were newly regulated. In all decrees since 1847, the original principle that the Government had to fix the maximum issue of bank notes had been formally adhered to. How detrimental this could become, we shall see in the case of the Java Bank. In Holland the danger was averted because the Government followed the experienced judgment of the Bank management, and this fact is equally honorable to both parties.

The strict secrecy of these decrees does not seem justified to us now, but they at any rate established a firm basis for the note issue, which had been wanting in the first three decades.

SECTION II.

WORKING ARRANGEMENTS OF THE BANK.

AS already stated, the passive business of the Bank during the first fifty years consisted of the deposit account business and the issue of bank notes. Opposed to these transactions, by which the Bank became debtor, stands the active business, by which it became creditor, such as discounting and making loans on stocks and merchandise, and from 1838 loans on foreign coin and bullion. To this was added the trade in coined and uncoined precious metal, and the employment of the license for having the latter coined. No sufficient figures for these branches of business are at my disposal; and for ascertaining the extent of the discount and loan business, material is also wanting. The amount of the latter two was at first probably not large. The narrow limits which had been placed on the discount and loan business in the beginning were abolished in 1838 and 1852. Besides this, the Bank had, in its early days, to fight against prejudice. The Amsterdam merchants still frequently preferred a cash business, and the private bankers and cashiers certainly did not try to assist the Bank. Neither was the general state of trade favorable to any considerable development of discounting and loan granting.

At first the Bank kept the loan rate very high. The decree of 1814 (Art. 24) had fixed the interest at a maximum of five per cent., and during the first years the Bank seems to have considered this rate an average one. The loan rate on merchandise remained at five per cent. till the end of 1828, and in the beginning of 1829 only, it fell to four per cent. For loans on stocks, the rate of five per cent. remained until the middle of 1819, while the discount rate was, from the beginning, subject to greater fluctuations.

Otto Hübner (“Die Banken,” Leipzig, 1854, volume ii, page 475) quotes the loan and discount rates from 1814 to March, 1853, and by kind information from the management of the Netherlands Bank, I have been enabled to supplement these figures up to the end of 1863, as follows:

HOW THE RATE OF INTEREST VARIED.

The movement is not quite even. The Bank had to defend its stock of bullion by raising either its loan rate on merchandise or on stocks, or its discount rate, and with all this no fixed system apparently ruled the relations of the different rates. Repeatedly all three stood at five per cent.; for instance, in July, 1817, in November, 1819, in October, 1823, in November, 1825, on September 30, 1830, in September, 1836. Since that time, however, this has not happened again. The influence of unusually critical periods can very easily be gleaned from these figures. The year 1817 is first remarkable. The discount, which, according to the principles of that time, was the only movable rate, soon equaled the loan rate; from three per cent. it rose to five per cent. Owing to a famine in Western Europe in 1816 and 1817, large speculations in grain were conducted, and we may presume that in consequence of this the Bank was more frequently used for discounting. The stock of bullion, that had been 10,030,000 florins on March 31, 1815, sank to 6,660,000 guilders on March 31, 1816, and to 5,130,000 guilders on March 31, 1817. The balances from current accounts at the same dates were, respectively, 10,860,000, 7,960,000, and 8,750,000 guilders. It may be assumed that the Bank raised the discount rate to prevent a too considerable decrease of its bullion, as it then possessed only very limited resources.

In 1818, a quick rise from three and a half to five per cent. of the rate of discount for bills of exchange repeated itself, but in 1819 the discount rate was again reduced. It cannot be ascertained whether the after effect of events or the influence of the still unfavorable conditions of trade in Europe must here be taken into consideration. At all events, the Bank had closed the working year 1817-18 with only 5,190,000 guilders balances from current accounts, which meant a large decrease as compared with the preceding year, and its stock of buillion had not increased beyond 6,760,000 guilders. Its whole working capital* on March 31, 1818, was only 8,540,000 guilders; and with such narrow means prudence was urgently required.

It is striking that during 1819 the discount rate retained a downward tendency. An anonymous pamphlet,† published in 1836 in Amsterdam, named “Verhandeling over eene opte righten Handelsbank” (i. e., discussion on the establishment of a commercial bank) reproached the Netherlands Bank with having been obliged to contract its discounting in 1819, and even with having stopped it.

The year 1819, in fact, disturbed trade in the northern provinces very much, as the Government introduced duties on important articles, such as coffee and sugar, in order to relieve the financial pressure. But the figures mentioned do not justify the reproach so far as discounting is concerned; and Van Hall especially points to its continuance. With regard to loans on stocks, the reproach can have no better foundation, as the loan rate was reduced to four per cent. in the month of July; and the interest for loans on merchandise remaining at five per cent. does not justify it either. The rates of September, 1819 (three per cent. for discounting bills of exchange, four per cent. for loans on stocks, and five per cent. for loans on merchandise), remained unchanged for several years.

A remarkable upward tendency set in in October, 1823. The discount on bills of exchange and the loan rate on stocks was raised again to five per cent. In December, 1823, they were reduced to four per cent., but in January, 1824, the rate for loans on stocks again rose to the maximum of five per cent., while discount remained at four per cent. We may assume that especially large loans on stocks were demanded from the Bank in connection with the active speculations in England. In April, 1824, both rates were reduced by one per cent. In November, 1825, they were both again raised to five per cent. The cause of this renewed rise is probably to be found in the endeavors of the Bank to restrict the mania for speculation. The state of trade became so critical at that time that the outbreak of a crisis in England was feared.

THE BANK AS A REGULATOR.

Before the year came to an end the crisis really occurred, and by fairly taking into consideration the above figures, we must acknowledge that the Netherlands Bank much sooner sounded alarm than the Bank of England. The latter raised, on December 17, 1827—only after the crisis occurred—its discount from four per cent. to five per cent., which it should rather have done before.

After the crisis, the rates went down again in 1828 to such a low price as had never been known before. In this manner the business world had credit made easy during very critical times, and this certainly contributed to make the consequences of the crisis less felt.

In 1830, new difficulties arose. The revolution in Brussels on August 25, 1830, which led to the separation of Belgium from Holland, could not be without influence on the operations of the Bank. In August, the rate of interest on loans on merchandise rose by one per cent. (to five per cent.), on loans on stocks first to 4 per cent., then to five per cent., the discount from two to three per cent. For the loan rate a further rise was barred; but the rate of discount rose on September 13th to four per cent., and on September 30th to five per cent. This rapid upward tendency must doubtlessly be attributed to the political disturbances which led to the separation of Belgium.

The English speculative crisis also shows itself in the loan and discount rates. In March, 1836, the Netherlands Bank raised the discount and the loan rate on stocks each by one-half per cent. (to two and one-half and three and one-half per cent. respectively). In April the Bank of England began to restrict its note issue in view of the exorbitant speculation, and the Netherlands Bank raised its rates by one-half per cent. (to three and four per cent). The rate on loans on merchandise was also raised from four to four and one-half per cent. The Bank of England was obliged in July to raise the discount rate from three to four and four and one-half per cent. In August they raised it even to five per cent. The Netherlands Bank followed in September, 1836, with a quick raising of discount and loan rates to five per cent.

For a short times rates went down, but in 1839 a new and rapid upward movement took place, which was undoubtedly influenced by events in England. Bad crop prospects had in 1838 caused embarrassment to the Bank of England. This increased in the beginning of 1839, because reckless speculation brought with it a want of money. The stock of bullion in the Bank of England reached a dangerously low amount in April, 1839, and quickly the discount was raised in London from three and one-half to five, five and one-half, and in August even to six per cent. The Netherlands Bank now being no more bound to a maximum of five per cent. for rates on loans, for the first time, in August, 1839, availed itself of its greater freedom and at once raised the loan rate on merchandise from four and one-half to five and one-half per cent.; for loans on stocks from four to five and one-half per cent., and the discount from four to five per cent.

The failure of the potato crop in 1845 and 1846 caused, after a few years of quiet business, a speculation in grain in England. At the same time large railway speculations were current. Therefore, credit was largely made use of; but the Bank of England again neglected to restrain this movement by raising the discount in due time, and still kept, in the beginning of 1847, the discount rate at three per cent. It was only on January 16, 1847, that the London discount was raised to three and one-half per cent. After this time it rose to unusually high rates, viz., on October 23, 1847, to eight per cent.

This time again the Netherlands Bank had long before sounded alarm. In September, 1845, it began to raise the interest on loans on merchandise to four and one-half per cent., and on stocks to four per cent. In October, 1845, also the raising of the discount began. Toward the end of 1845 the two former had reached six per cent., the latter five and one-half per cent.—rates, till then, unknown at the Netherlands Bank. In 1846, a slight weakening set in. Loan rates, however, remained still so high as to discourage speculation. In November, 1847, interest again rose to six per cent. and five and one-half per cent., and discount to five per cent. Vissering rightly points the greater uniformity in the movement of these rates in contrast to the sudden fluctuations of those of the Bank of England.

INTERNATIONAL MONETARY CONDITIONS.

In January, 1848, the Netherlands Bank began to reduce the rates of interest and of discount. But the revolutionary movements necessitated an interruption in March; loan rates rose again to six per cent. and discount to five per cent. From May, 1848, they slowly fell. On March 8, 1850, the interest stood at three per cent. for loans on merchandise, two and one-half per cent. on stocks, two per cent. for discounting bills, three per cent. for discounting other securities, which rates were maintained for several years.

Large speculations and the Crimean War led to an international crisis in 1857. Even in 1855 financial matters were greatly strained, and the discount rate of the Bank of France, in October, 1855, quickly rose to six per cent. At the Bank of England interest stood as follows: On September 1, 1855, four per cent.; on September 15th, four and one-half per cent.; on September 29th, five per cent.; on October 6th, five and one-half per cent.; on October 20th, six and seven per cent. A slight fall in these rates could be perceived in England, as well as everywhere else, in 1856, but it was not of long duration. The discount rate of the Bank of England often changed, and rose on November 5, 1857, to nine per cent.; on November 9, 1857, even to ten per cent.

The Bank of Prussia (Berlin) was not quite so impetuous, though it reached, on the 7th of November, 1857, a rate of seven and one-half per cent.

At the Bank of France the rates of interest in 1856 and in the first half of 1857 fluctuated between five and six per cent. Then, however, it rose by leaps and bounds; on October 13, 1857, to six and one-half per cent.; on October 20th, to seven and one-half per cent.; on November 11th, to eight per cent. on first-rate thirty-days’ bills; nine per cent. on first-rate sixty-days’ bills; ten per cent. on first-rate ninety-days’ bills.

At this period great difficulties in procuring money were also experienced in Vienna, Hamburg, Copenhagen, and Stockholm. Even if speculation in Holland had not been more active than usual, the Bank would have been obliged to raise its discount in order not to be deprived, directly or indirectly, of its then very considerable stock of bullion by foreign countries. This bullion, consisting mainly of deposits made by the Treasury, being in very advantageous proportion to its engagements, enabled the Bank, even in the hardest times, to keep its rates lower than in other places, and to prevent such violent fluctuations as those of the Bank of England.

Discount rates were three and one-half, four, and four and one-half per cent. in 1855 and in the first half of 1856. In October, 1856, discount rose to five per cent., and in December of that year to five and one-half per cent. The fact that in September, 1856, foreign bills, which only served to procure money for speculative purposes, were not admitted to discount, proves that the main object was to keep the bullion from going abroad. In January, 1857, discount dropped to five per cent., in March to four and one-half and four per cent., while in London an advance to six and one-half per cent. became necessary. From the month of August a new upward movement began. In October, when in all other places discount rose to six and one-half, seven, and eight per cent., the Netherlands Bank went to only five and one-half and six per cent. On 11th of November, 1857, a further advance to seven per cent. for bills (to seven and one-half per cent. for other securities) had to be made, a rate which the Netherlands Bank had never reached before, and which occurred only twice since, viz., on the 14th of October, 1864, and on the 3d of July, 1866. But this rate was still inferior to that reached by the other chief banks. On November 11, 1857, discount stood at ten per cent. at the Bank of England, and eight, nine, or ten per cent., according to the due date, at the Bank of France, and seven and one-half per cent. at the Bank of Prussia. The Netherlands Bank thus materially lessened the effect of the difficult position on the Amsterdam business world, and met its credit necessities as much as possible. When Wirth (“Geschischte der Handelskrisen”—History of Commercial Crises—folio 389, Frankfort-on-the-Main, 1890, Fourth Edition), says: “Switzerland, Holland, and Belgium, together with the South of Germany, were the most spared of all cisalpine countries,” the Netherlands Bank may claim great credit for this fact. Not every case, of course, could be relieved by it, but it was a great triumph that the financial tempest which shook the civilized world did so little harm in the Netherlands.

Things soon assumed a quieter aspect, and in the last years of the period in question rates of interest and discount kept at a moderate elevation.

The difficulties prevailing in France and in England during the year 1863 had only a slight effect on the Netherlands Bank. Discount did not rise above five per cent., which rate was reached on December 5, 1863.

THE LOAN AND THE DISCOUNT RATE.

In the whole movement which has been under review, it is remarkable that the interest on loans on merchandise or stocks never rose above six per cent., not even on November 11, 1857, when the discount on bills had to be raised to seven per cent., and that on other securities to seven and one-half per cent. Since 1839, the maximum interest established by the decree of 1814 had ceased to exist. Before July, 1837, it had frequently happened that the loan rate and the discount rate were equal; but this was exceptional. As a rule, the discount rate kept from one-half to one per cent. below the loan rate. From July, 1837—i. e., during two decades—no deviation from this system had taken place. It may be assumed that during the year 1857 great demands were made on the ready-money stock of the Bank, not only in discounts, but also for loans, and especially loans on stocks. Notwithstanding all this, however, the discount rate was materially higher than the loan rate, which circumstance can be explained by the fact that in spite of the abolition of the maximum interest rate introduced in 1814, a maximum still higher by one per cent. existed. The usury law of September 3, 1807, which did not apply to discounting, but which was applicable to loans against securities, had forbidden an interest charge higher than six per cent. on commercial business. Till then the Bank had had no cause to feel restricted in its operations, and only the events of 1857 showed the disadvantage of a fixed maximum interest. The Bank management, which, after the shaping of its discount policy, carefully examined the course of events, tried to avoid the consequences by lowering the loan limit and by shortening its duration. On October 21, 1857, it proposed to the Minister of Finance the revocation of the law in question, and renewed its request on November 12, 1857, pointing out at the same time that a refusal might compel it to discontinue the granting of loans altogether. On December 22, 1857, a law in response to this appeal was promulgated.

Of the other operations of the Bank during the years 1814-15 to 1862-63, Vissering has given a review which shows its standing at the end of every fiscal year, i. e., on March 31st. For the year 1863-64 I have been able to supply the figures after communicating with the management of the Netherlands Bank.

From the data thus obtained, the table on page 248 has been compiled, the sums being expressed in millions of guilders.

For the better understanding of this table, I must add that the share capital of the Netherlands Bank in 1814-15 amounted to 2,445,000 florins; in 1815-16, to 4,105,000 florins; in 1816-17, to 5,000,000 florins. By royal decree of March 27, 1819, an increase to 10,000,000 guilders was sanctioned, and a royal decree of April 7, 1840, raised the share capital to 15,000,000 guilders. The new shares were placed on an equal footing with the old ones, only the new shares had to be taken up with a premium of from five to fifteen per cent., in order to compensate for the reserves accumulated by the holders of the old shares.

No stipulation for the accumulation of a reserve fund, however, was expressed in the decrees of 1814 and 1838. The Dutch code of commerce left it to the rules of joint-stock companies to prescribe the formation of a reserve fund. But the Netherlands Bank had, according to the foregoing table, already begun, in its second year, 1815-16, to accumulate a reserve. The reserve fund on March 31, 1816, amounted to one per cent., and on March 31, 1819, to five per cent. of the share capital. Through the premium of five per cent. at which the new shares were issued in the latter year, the reserve fund was increased to 500,000 guilders, again representing five per cent. of the share capital at that period. Nothing was added to the reserve until the middle of the second decade, when further sums were thus applied. The reserve fund rose till 1829, stood a little lower from 1830 to 1832, and then increased again, first slowly, but later very rapidly, toward the end of the thirties. By the addition to the share capital in 1840, when the new shares were sold with a fifteen per cent. premium, the reserve fund reached 2,250,000 guilders—i. e., fifteen per cent. of the increased capital—and it remained unchanged till 1852. In 1853 a small increase took place, but this was counterbalanced by a considerable decrease in the ensuing year. Later on, the reserve fund increased again, without, however, reaching the full amount of fifteen per cent. of the share capital. In any case, the fund amounted to amply more than ten per cent. of the capital, and this was enough to dispense with the necessity for a further reserve.

The table also shows the passive operations of the Bank (i. e., the current account and note issue business) on the one hand, and the stock of specie and bullion on the other. Vissering ascertains, after the method adopted by Mees in the “Staatkundig en staathuishoudkundig jaarboekje” (statistical annual) of 1852, by placing the sum of the share capital, the reserves, the current account balances, and the notes in circulation on the one side, and the specie and bullion on hand on the other, the working capital—that is, the capital with which the Bank aided commerce.

The amount of this capital being ascertained on the last day of each working year, of course shows the effect of temporary influences, but the chief features of its development stand out sufficiently clear.

ACCOUNTS CURRENT OPERATIONS.

It is striking how the balance from current accounts varies. It amounted, for instance, on March 31st:

The variation is partly explained by the fact that for a long period the Bank was very little used as a place of deposit by the business world. According to the decree of the year 1814, private deposits were altogether excluded, as only money of the Government and other public authorities could be taken into current account. But even after account current business with private individuals had been allowed, in 1838, it was still the Government itself, the city of Amsterdam, and the Nederlandsche Handels Maatschappij,” founded in 1824,* that chiefly availed themselves of the services of the Bank for purposes of deposit. The amounts which flowed into the Bank from these sources, or which were withdrawn from it by them, varied very much, and a stable average could have been secured only if the business world generally had regularly availed itself of the Bank’s accounts current. This, however, hardly happened during the first fifty years of the Bank’s existence. The Bank had omitted to found branches, although it had the right to do so ever since its foundation. Even the strict injunction in the decree of August 21, 1838 (Art. 34), to found a branch (bij-bank), at Rotterdam had not been obeyed, and the Government had not remonstrated. In the earlier decades this omission is easily explained by the current account business being restricted to funds of the Government or other public authorities, by the general economic condition, and by the fact that out of Amsterdam still less inclination for using the Bank was to be found than in Amsterdam itself.

During the last years of our period circumstances became more favorable, but the Bank management of those times did not possess the amount of courage needed to found special branch establishments at other places. Thus the city of Amsterdam remained nearly the exclusive sphere of the Bank’s business, except for the circulation of its notes. In this city, also the current account business with private individuals had presumably increased since the fifties, but without being able to counteract the preponderating influence of the current account balance of the Bank’s three chief clients. The managers of the Bank themselves stated, in their report of the 16th of October, 1837, that their balances from current accounts were mostly composed of deposits from the Treasury and the Handels Maatschappij. The great changes in the amount of those balances compelled the Bank to all the greater precautions, as no definite arrangement for covering them had been made in the orders of 1814 and 1838, and the Bank used to demand full cover for the balances in bank notes.

Notwithstanding the striking differences from year to year, the current account balances for an extended period show an increase, at first slow, but afterward more rapid. The yearly average amounted in—

NOTE CIRCULATION.

The circulation of bank notes kept at a very moderate volume during the first years. The business world used the bank notes very little as a cash substitute. The small inclination of the Dutch business world to use the bank notes as a substitute for hard cash was easily explained by the state of monetary affairs prevailing in the beginning of the Bank’s existence.

The fixing of a uniform monetary system for the north and south provinces united in one State in 1814 had even to be undertaken. In the southern provinces French coins were used, besides the older native ones, while in the north guilders circulated as the chief coin, partly in a very “clipped and worn”* state, but, for the most part, of full weight. The silver guilder contained 200 azen (9 grammes and 613 milligrammes) of fine silver. The law of the 28th of September, 1816, prescribed the silver guilder as the monetary unit, containing 9.613 grammes of silver, and weighing altogether 10.766 grammes of the fineness of 893/1000. Besides this silver legal tender, a golden tenguilder piece was introduced as another standard coin, weighing 140 azen (6.729 grammes), and with a fineness of 9/10. This was based on a silver ratio of 1 to 15.87. For private account, the coinage of silver one and three guilder pieces only was allowed, while the gold coins were struck solely for account of the State. As trade coins, the coining of which was exclusively reserved for private account, the following pieces were current: the silver ducat, the silver rider, and the gold ducat, which were respectively accepted by the offices of the Exchequer for 2.50, 3.15, and 5.5 guilders. In the southern provinces francs had to be taken in private transactions, as well as in the offices of the Exchequer, at the exchange of 47¼ cents. This exchange would have been correct if the silver guilder had contained only 9.5238 grammes of fine silver, but as it really contained 9.613 grammes, it was profitable to have silver guilders melted into francs; and this was frequently done. Silver guilders were sent to the French mint, there melted down and recoined into francs, after which they were reimported into the Netherlands.

There was the further circumstance that gold had been valued above the market rate in the calculation of the ten-florin pieces. (In France the silver ratio was 1:15½.) Moreover, the Government had a great amount of these gold coins struck, so that silver guilders were now discarded by trade to a great extent. Thus gold became the chief legal tender of commerce.

But this made the use of bank notes unnecessary, and they were, therefore, but little circulated. The critical conditions in the years 1817 and 1818 evidently did not occasion a marked increase in the issue of bank notes. In the year 1823-24 there was, however, a considerable increase of the notes in circulation, which amounted to 20,220,000 on the 31st of March, 1824. As already stated, the movement in the loan rate points to the fact that at this period, in connection with the speculative movement in England, considerable loans on stocks had been granted.

DECLINE IN THE PAPER CIRCULATION.

The following years again show a marked decrease in the note circulation, and this can be explained by the condition of the currency. The law of the 25th of February, 1825, and the royal order of the 13th of May, 1825, declared that francs should not enjoy any longer the rate of exchange fixed in 1816. After this they were not worth more than 46¾ cents, and the temptation to have silver guilders recoined into francs no longer existed. Meanwhile, however, the coining of gold pieces had been greatly extended. The Maatschappij ter Bevordering van de Nationale Nijverheid (Society for the Encouragement of National Industry), founded at Brussels in 1822, had received a license for coining gold in 1823, and as the society could realize great profits from this business, it made extensive use of its privilege. Thus, in 1825, sixty million florins’ worth of gold coins were brought into circulation. For this reason the silver guilder did not now come into general use. It still was profitable to melt the florins down and then to sell the silver for gold, as a too advantageous ratio had been adopted; and there being plenty of gold available, this operation took place very frequently.

On December 22, 1825, another law was promulgated according to which the variety of coins was increased by a gold five-guilder piece, the fineness of which was 9/10. But this did not tend to facilitate the employment of bank notes as a cash substitute. Slowly only at first, but more quickly in the years 1828-29 and 1829-30, did the number of notes in circulation grow. The revolution of 1830 and the separation of Belgium had an unfavorable effect on the note circulation, a very considerable part of its area having thus been lost. Our table shows a decrease of 26,070,000 florins on March 31, 1830, and one of 14,290,000 and 14,150,000 guilders respectively at the end of the two ensuing working years. From then the amount kept higher, but without reaching any considerable proportions.

In 1836, as the movements of the loan and discount rates show, enlarged demands for credit had to be satisfied, and the Bank had sufficient bullion on hand to meet them by an increased note issue. It cannot, however, he gleaned from our table that the Bank had made any use of this means. There was a similar state of things in 1839, but the amount of notes in circulation only once exceeded twenty-five million florins from 1832-33 to 1839-40, and that was at the end of the fiscal year 1837-38.

CHANGES IN THE COINAGE.

Changes in the currency continued to exercise an unfavorable influence during this period. The Dutch gold coins were further minted on the basis of 1:15.87, while on the London bullion market the average from 1831 to 1840 was 1:15.75. In 1836 the Government appointed a committee which in its report of November 23, 1836,* adverted unfavorably to the fact that 133,000,000 guilders’ worth of gold had been coined from 1816 to 1830, and recommended a more limited circulation of gold. The committee explained the impossibility of keeping the silver florin in circulation by the introduction of bimetallism. They recommended monometallism, and the majority were for a silver standard, while P. C. G. Poelman, afterward Mint-Master of the Netherlands, advocated the following of the English example by accepting a gold standard. The chairman of the committee, however, stated that he did not share the fear of bimetallism, and that he considered the wrong basis accepted in 1816 as the cause of the unsatisfactory state of the currency.

The councillors and general masters of the mint were then asked to examine the committee’s statements, and in their report of February 4, 1837, they said that they considered the principle of monometallism, viz., the gold standard, as the more desirable one, since the rate of exchange for bills was totally dependent upon gold.

The Government, however, stuck to bimetallism, and their bill, not introduced before 1839, found the approval of Parliament. The result was the law of March 22, 1839, which kept gold and silver coins as legal tenders. The silver guilder was to contain 945/1000 of fine silver and must weigh ten grammes, i. e., its contents of fine silver were reduced from 9.613 grammes to 9.45 grammes. At the same time silver two and a half florin pieces were introduced instead of the former three-florin pieces. This measure was intended to bring the gold and silver standard of the Dutch currency into harmony with the relation existing in the open market. In reality, a ratio of 1 to 15.604 resulted from this law. What did this transformation mean for the note circulation? Up to the year 1839, 141,500,000 guilders’ worth of gold had been coined, which continued to serve as a means of currency. The coinage of silver under the new law made but very slow progress, although the market ratio between the two metals was such as to make silver coinage profitable for the Government. The ratio was: 1 to 15.62 in 1840, 1 to 15.70 in 1841, 1 to 15.87 in 1842, and 1 to 15.93 in 1843. Notwithstanding this, the Government had very few coins melted down, because it had not got sufficient means in hand for carrying out the reform, and of the few millions coined according to the new law, the greater part stood to the account of the Netherlands Bank and the Handels Maatschappij, and was sent to the East Indies. Gold coins, of which there was over 140,000,000 guilders’ worth for a population not exceeding 2,860,000 (on January 1, 1840), still constituted the measure of prices, even if not as exclusively as before. The note circulation, therefore, still kept within moderate limits, and from 1840 fluctuated around thirty millions; but an increase, in comparison with former times, was perceptible. The critical years 1845-48 on the whole show an increased note circulation, so far as can be seen from the final amounts of the several fiscal years. In 1845 the note circulation had temporarily reached forty million florins, and the board of directors had thereupon demanded a larger margin for the note issue (fifty-one million guilders) when the question of the maximum issue came up in 1847. The maximum was then fixed at fifty-two million florins on October 5, 1847, at seventy-two millions on February 15, 1849, and at 122 millions on October 18, 1849, as already stated.

The final figures of the different years show a considerable increase in the note circulation, which had reached 93,800,000 on March 31, 1854. The amount of bullion on hand also showed a marked advance at that period, although the general state of trade was not such as to explain the necessity for an increased note circulation. The revolutionary movement of 1848 had damped the spirit of enterprise, unemployed capital accumulated everywhere in Europe, and this abundance of money was bound to limit credit operations. With the Netherlands Bank this was particularly marked in the decline of the discount and loan business, and the yearly average of the sums thus employed was only 14,727,000 guilders in 1848-49, and 12,299,000 guilders in 1849-50, as against 25,742,000 florins in 1842-43, and 33,243,000 florins in 1844-45. I quote these figures from the paper of N. P. van den Berg, to which I have frequently referred. The increased note circulation can partly be explained by the greater publicity introduced into the Bank’s operations since 1852, but the lasting effects of the currency reform carried out meanwhile were of still greater influence. This subject requires a further short explanation.

DIFFICULTIES OF RECOINAGE.

The law of March 22, 1839, which had made provision for the recoining of the silver florins into lighter weight had not been carried into effect for want of means, as already stated. Then a law of May 22, 1845, placed more than six million florins at the disposal of the Government for carrying out the currency reform. This sum had to be raised chiefly from the revenue of the Crown domains and by selling the 1000 shares of the Netherlands Bank belonging to the Government. A further law of December 18, 1845, empowered the Government to withdraw from circulation all coins struck before the decree of September 28, 1816, and to issue for this purpose “muntbiljetten,” at a minimum value of one guilder each. For every 100 guilders in such “biljetten,” 945 grammes fine silver or 60.56 grammes fine gold in new coins or in coining-material had to be deposited in the Bank. The muntbiljetten were to circulate till December 31, 1847, as legal tender, but were not redeemable. On December 27, 1845, the issue of ten million guilders in muntbiljetten was ordered, and now the putting out of circulation of the old coins was vigorously taken in hand. On March 2, March 9, May 7, and November 9, 1846, the issue of a further five millions, each time, was ordered, so that altogether thirty million guilders were in circulation in muntbiljetten. In 1846, forty-four millions, and in 1847, 15,700,000 guilders of the old coins were called in.

After these preparations, the Government submitted a bill on March 25, 1847, which proposed the transition to the silver standard. The resulting law of November 26, 1847, adopted, in article two, as a legal tender, the guilder, the rycksdaelder (= 2½ guilders), and the half-guilder piece, besides which there still appeared, according to article five, as coumaercial, the golden ducat and the golden William. The guilder represented the monetary unit; it was to weigh 10 grammes and contain 9.45 grammes fine silver. In the same proportion, the rycksdaelder and the half-guilder-piece had to be struck (Arts. 6-8). As to the negotiepenningen, the golden William was to weigh 6.729 grammes and contain 6.056 grammes fine gold; the fineness was thus 9/10. The golden ducat was to weigh 3.494 grammes and contain 3.434½ grammes fine gold (thus the fineness was 983/1000). (Arts. 13 and 15.)

According to article eighteen, everybody was to be allowed to have gold commercial coins and silver legal tender struck at the public mints; but according to article twenty, the commercial coins had not the legal-tender quality. It had to be settled before December 31, 1850, what should be done with the existing gold five and ten guilder pieces. Until this regulation, these gold coins remained a legal tender (Art. 23). On the same day it was settled that till December 31, 1848, a maximum amount of twenty-one million guilders in muntbiljetten might remain in circulation. The muntbiljetten had indeed somewhat limited the circulation of bank notes, but their issue had been only a provisional measure.

The monetary law of November 26, 1847, at first led to a heavy purchase of silver by the Bank; its stock of bullion was thereby greatly increased, and this made a more considerable note circulation possible. In the beginning of 1849 the circulation of bank notes approached the maximum amount of that time (fifty-two million guilders), and the Bank, on February 15, 1849, as already mentioned, was therefore empowered to issue a further twenty million guilders in bank notes fully covered.

In the same year the Government began to make proposals for the final disposal of the gold five and ten guilder pieces. Accordingly, on September 17, 1849, a law was proclaimed which ordered the entire demonetization of these coins. It was left to the Government to fix the date when they should cease to be a legal tender. To carry out these drastic measures—more than 170 million guilders’ worth of such coins had been struck—the Government was to be allowed to issue up to thirty million florins in muntbiljetten, of no smaller denominations than ten florins each, which should be covered by deposits in gold coin.

Before the promulgation of this law, the Government had secured the help of the Netherlands Bank. The maximum note issue was raised on October 18, 1849, to 122 million guilders, the first fifty-two millions of which had to be covered to the extent of forty per cent., and the remainder had to have a full metallic security. According to the request of the board of directors, the Government ordered, on June 9, 1850, that the gold five and ten guilder pieces should cease to be legal tenders by June 23, 1850. The exchange was to be effected from June 17th to 22d, and on the 24th only 49,790,000 guilders had been changed, as the silver ratio was 1:15.7, and the exchange, therefore, did not seem very favorable. According to the law of March 22, 1839, the gold ten and five guilder pieces had been struck at a ratio of 1:15.604. The Bank began at once to sell the gold, so that it never had all the exchanged gold coins on hand at once. On March 31, 1851, the Bank had only 17,250,000 guilders’ worth of gold, which was sold within three months. The consequence of this was, that the Government had to borrow only six million guilders for three months from the Bank, instead of fifty-four million guilders, which it had reserved to itself in the law of October 22, 1849.

A NEW OPENING FOR THE BANK’S NOTES.

The note circulation in 1850 did not, therefore, reach the amount which the Bank had expected to require. But the increased maximum did not prove a disadvantage, because the fact that nearly fifty million guilders in gold coin had been taken out of circulation and had been replaced by the heavier and less handy silver money, made the bank notes more desirable. The transition to a silver standard was also favorable to the precious metal—or rather silver—trade of the Bank, that had been neglected for some ten years. In fact, Amsterdam now became an important silver market; the importance of which was still further increased by the speculation in silver, which received an impetus in the fluctuations of the ratio between gold and silver in the market as against the fixed legal ratio in bimetallic countries. From October, 1852, the Bank paid 104.65 guilders, plus one-half per cent. brokerage, for one kilogramme of fine silver, and resold at a favorable price what it did not get coined. The above-mentioned price of 104.70 guilders, including brokerage, was comparatively high.

If the Bank had had to pay the complete seignorage when it had silver coined, it would not have received more than 104.76 guilders for one kilogramme fine silver after the reduction of the seignorage in 1852. But as the Bank was able to supply the mint with any amount of silver it wanted, the latter was satisfied with a small seignorage, and the Bank was thus enabled to do a profitable trade in the white metal. In this it found an important aid to the employment of its notes. The Bank being at any time able to exchange the silver currency for Dutch standard money, it always had means to redeem its notes in legal tender.

The considerable weight of silver was, besides, bound to ensure a greater popularity to the paper currency. For this reason, large amounts of the thirty million florins’ worth of muntbiljetten issued by the law of September 17, 1849, remained in circulation, notwithstanding the increased note circulation. From June 1, 1851, the muntbiljetten were again exchanged for cash; but on October 21st* of that year only 16,893,160 guilders’ worth of them had been redeemed, while over thirteen millions were still in circulation. This slow reflux of muntbiljetten occasioned the law of April 28, 1852, which fixed the amount of muntbiljetten to be issued at ten million guilders, in denominations of 10, 50, and 100 florins.

An unsalable and not negotiable entry of two and a half per cent. stock in the Great Ledger was to form “a fund to secure the redemption of the debt bearing no interest” (i. e., the muntbiljetten) in the custody of the Netherlands Bank. By this fund the Bank was covered, and could therefore be trusted with the task of exchanging the muntbiljetten for standard coin at any time. The biljetten had to be provided with the stamp or visa of the Bank, which in this way signified its guarantee.

EXPANSION OF THE NOTE CIRCULATION.

All this very considerably increased the note circulation, and the final amount at the end of each fiscal year was:

which means an increase of 190 per cent. within eight years. On October 27, 1855, a maximum of 150 million florins for the note issue was granted to the Bank, which had really desired the total abolition of a maximum.

The metallic reserve was to be forty per cent. for the first and sixty per cent. for the second fifty millions, while the last third was to be fully covered. The increased demand for credit since 1855, especially in the autumn of 1857, rendered desirable an increase of the means to satisfy this want, and, as there could be no relying upon the uniformity in the sum of the current deposit balances, a metallic security of forty per cent. for the second fifty million florins had already been declared sufficient on October 21, 1857. This helped the Bank to satisfy the demands for credit; and, thanks to its far-sighted note and discount policy, no hitch in the granting of credit occurred, even in the most critical times of the crisis of 1857. The total amounts of the note circulation during the years from 1857 to 1859 were smaller than in the preceding years, but they soon rose very considerably.

The bank notes had become a very important element in the Dutch currency in the beginning of the fifties, and the sixth decade of our century closed with a note circulation of about 100 million guilders in a population of about 3,300,000 souls. The amounts of silver legal tender coined were:*

THE BANK’S METALLIC RESERVE.

From 1842 to 1860, silver coins to the value of 98,600,000 guilders had been exported to the Dutch East Indies, where the currency was regulated, like that of the mother country, by the law of May 1, 1854. Part of the coins also lay in the Bank’s cellars, but the figures necessary to ascertain the amount of silver standard coins circulating in the Netherlands are not accessible. The amount must have been very considerable, and to it must be added 10,000,000 guilders’ worth of muntbiljetten. It may be assumed that, including bank notes and muntbiljetten, currency to the value of about 200,000,000 guilders was in circulation besides that held by the Bank.* About half of the circulating medium consisted of bank notes, which is a very remarkable sign of the popularity the bank notes had meanwhile been able to secure. The vigilance which the Bank management exercised in retaining a sufficient metallic reserve against the notes in circulation, and the balances on current accounts, did, undoubtedly, greatly contribute to this success.

The amounts of the different forms of currency were as follows, taking the average of a period of ten years, according to final figures at the end of each fiscal year (in millions of florins):

Circumstances so favorable as those above indicated excluded all danger of a hitch in the redemption of bank notes or in the repayment of current account balances.

THE BANK’S PROFITS.

To the shareholders, the first fifty years of the Bank’s working proved very profitable. They were obliged to be satisfied with a dividend of three per cent. in 1851, 1852, and 1853; of three and a half per cent. in 1821, 1829, and 1850, and of four per cent. in 1820 and 1822; but except in these years the dividends always amounted to more than four per cent.; and the fifties were especially profitable. The average yearly dividend on each share of 1000 guilders amounted to:

Altogether, 3468.30 guilders have been paid in dividends on each share within the first fifty years; that is, three and a half times the amount paid up. This means an average dividend of 6.94 per cent. during the first half-century of the Bank’s existence.

Classifying the different periods according to the increasing amount of capital, we find the following development:

Thus, within the first fifty years 42,270,000 florins of dividend have been paid to the shareholders.

[* ] I have only a French edition of this decree.

[* ] The president of the Netherlands Bank, Dr. N. P. van den Berg, relates this in his discourse, “De Regeling van de Bank Biljetten,” Amsterdam, 1896, pp. 3 and 4.

[* ] Also in accordance to the decree of 1838, Article 7.

[* ] By the law of September 17, 1849, the Government was permitted to issue “muntbiljetten” (a sort of paper money) for thirty million guilders, which amount had to be covered in gold coins and deposited in the Netherlands Bank.

[* ] All these particulars about maximum of note issue and guarantee of bank notes were not known up to now, Mr. N. P. van den Berg, the present president of the Netherlands Bank, can claim great merit for having thrown light upon this question by the aid of the documents of the Bank in his lecture, “De regeling van de bankbiljetten-emissie hier te lande,” delivered at the Royal Academie der Wetenschappen (Amsterdam, 1896). The royal decrees in question were marked “secret” at that time.

[* ] Vissering calls “working capital” the difference between the total sum of capital, reserves, current account balances, and bank notes in circulation on the one hand, and the total stock of specie and bullion on the other.

[† ] I regret to have been unable to get it, but F. A., van Hall, in his “De Verhandeling over eene opte righten Handelsbank” (Amsterdam, 1837), has sufficiently enlarged upon it.

[* ] In order to favor the commercial intercourse of the Netherlands with the Dutch colonies.

[* ] F. Ackersdijck, “Nederlands Muntwezen,” Utrecht, 1845, page 3.

[* ] Schimmel (page 109) and Ackersdijck (page 23) give more detailed information on this report.

[* ] Schimmel, page 198.

[* ] According to “Jaarcijfers, uitgegeven door de centrale comissie voor de statistick” (statistical annual).

[* ] In 1866, the amount of silver coins, muntbiljetten, and bank notes in circulation was 206,200,000 guilders.