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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 I.

HISTORY PREVIOUS TO THE NATIONAL BANK.

THE COURANTBANK.

ARIGHT understanding of the development of Danish banking requires more or less acquaintance with its earliest origins, whose principal features we shall briefly describe.* The first Danish bank was founded in 1736, under the name of “Kjöbenhavns Assignations- Vexel- og Laanebank,”† which was generally called the Courantbank, or “Circulating Bank.” This was organized by a private joint-stock company, and the capital stock consisted of 1000 shares at 500 rix-dollars each. The Bank issued redeemable notes, which were accepted in payments at all public places of trade. As the directors’ right of issuing notes was unlimited. and as the manner of securing them was undefined, it soon happened that the rapidly rising demand for loans tempted the Bank to issue notes in excess of a judicious amount. As early as 1745 the notes failed to be redeemed, and the Bank, so prosperous at the start, had to resort to the extreme legal expedient of suspending payments. This first suspension of payments lasted only two years. But after 1747 the issue of notes again overstepped prudent bounds, and in 1757 the Bank was again authorized to suspend cash payments “for a short time.” The suspension, in fact, became permanent. Down to that time the smallest denomination of bank notes had been ten rix-dollars; but in 1762 the Bank was empowered to issue notes of one rix-dollar. The result of these arrangements was that the notes of the Courantbank degenerated into a compulsory legal tender, in the form of unredeemable paper currency. The Government had thus been highly helpful to the Bank, and the Bank returned the favor by making a great increase of loans to the State. In 1773 the State’s debt to the Bank was over 5,000,000 rix-dollars; the Bank’s capital stock was 600,000 rix-dollars; the circulation of notes, 5,700,000 rix-dollars, and the coin reserve only 83,500 rix-dollars. The Government then proposed to the Bank’s shareholders that it should buy in their shares, which proposition they accepted. So from 1773 forward, the Courantbank was a State bank. The note issue now rose to extravagant proportions. In 1774 it was 6,500,000 rix-dollars; in 1784, 15,200,000 rix-dollars (about 50,000,000 crowns), and the value of the notes fell to fifteen per cent. below par.

ATTEMPTS AT CURRENCY REFORM.

The year 1784 marks the beginning of a whole series of reforms in Danish statecraft, and it was also the Government’s intention to advise a remedy for the disturbed conditions of banking and currency. It was proposed that the State should cease to draw loans from the Bank, and that the notes should be made redeemable in silver. In order to realize this plan, a new loan was raised, but the outbreak of war in 1788 checked the entire scheme. Nevertheless, one part of the Danish dominion succeeded in reforming the demoralized currency. This was the ducal government of Schleswig-Holstein, which ordered the retirement of Courantbank notes, and the issue of “specie notes” in their stead, as affording better security. These and the new coins were to be the only public legal tender in the two duchies. The specie notes were issued by a new bank, separately organized for the duchies, and located in Altona. Through the raising of a loan payable in the current notes on very favorable terms for creditors, the people were delivered from the old Courant notes. The Specie Bank in Altona, which carried out the reform, was a State bank, managed with great energy and ability. It was authorized to transact a business in loans and discounts; and the discounts should be constantly covered by silver, in the ratio of five to nine, which regulation was strictly enforced.

While the two duchies were thus bravely reforming their currency, the financial situation in other parts of the realm was growing worse. It is true that an attempt was made on similar lines to reorganize the currency in the Danish and Norwegian kingdoms; but the attempt utterly failed. In 1791, a Danish-Norwegian specie bank was established in Copenhagen; and though a private enterprise, it was to be managed on the general plan of the bank in Altona. However, it might exchange specie notes not only for silver, but also for Courantbank notes at their market value. As will be anticipated, the latter provision had exceedingly unfortunate consequences. When the Specie Bank was opened, the Courantbank stopped giving out loans; and its operations should now be limited to the withdrawal and cashing of its own notes, to an annual amount of 750,000 standard rix-dollars. As a matter of fact, this was not done; for the Government, which had control over the issue of bank notes, kept continually putting the Courantbank notes in fresh circulation. That the rate of exchange for paper currency still continued pretty favorable, must be ascribed partly to good market conditions and partly to public ignorance of what was going on in financial and banking circles. But a grave crisis occurred in 1799. The large trade with foreign countries came to a sudden halt, and the demand for currency straightway declined. Things were made infinitely worse by the Government’s persistent issue of great quantities of Courant notes, while at the same time it borrowed over one-half of the Specie Bank’s coin reserve (in silver). The latter bank then soon became unable to redeem specie notes, which poured in copiously from the public market. So the specie notes began to fall, and the Specie Bank was promptly obliged to stop granting loans. At this point the Specie Bank’s utility practically ended, and it simply vegetated and languished until the Government, in 1813, assumed its assets and liabilities and released its shareholders from their commitments.

A NEW BANK AND WAR FINANCE.

In such circumstances, it was not without reason that the public urged, in 1799, the necessity of having a new credit institution. A concern which was organized under the name of “Deposit Bank” exerted no salutary influence. Quite contrary to the regulations which had been promulgated in 1791 respecting the disposition of Courant notes, these were extensively circulated by the Deposit Bank, both as loans for actual enterprises and in payment of maturing obligations, though not for starting new projects. There was a very naïve ordinance to the effect that the Courant notes which were circulated by the Deposit Bank should bear a special mark by which their later withdrawal might be the better controlled. In fact, they never were withdrawn. During such desperate conditions came the war of 1807-14, and in these years the manufacture of bank notes was of the utmost financial service to the Government. Whereas the amount of bank notes in 1807 reached the extraordinary sum of 27,000,000 rix-dollars (about 86,000,000 crowns), by the close of 1812 it had risen to 142,000,000 rix-dollars (about 454,000,000 crowns). The normal rate of exchange was 125 rix-dollars to 100 specie dollars, but under the depreciated currency it was 1760 to 100—that is, a specie dollar, instead of representing one and a quarter rix-dollars, represented from seventeen to eighteen rix-dollars.

NEW ROYAL BANK AND REPUDIATION.

For the sake of bringing the economic status to its feet again, a decree dated January 5, 1813, provided for the erection of a new “Royal Bank.” At the same time a new currency standard was introduced, under the name of the “Royal Bank standard.” According to this, two rix-dollars should equal one specie dollar. Both the Courantbank, the Specie Bank, and the Deposit Bank were abolished, and the new Royal Bank notes were to circulate alike in the kingdom and in the duchies. However, the most radical feature of the reform was the State’s recourse to a kind of bankruptcy, in that it declared its downright inability to redeem the Courant notes according to their original value. In this connection it must be borne in mind that the Courant notes were mainly in the hands of the people, who had received them at a lower value than was called for by redemption. The bankrupt proposition reduced the Courant notes to one-tenth of their nominal value, and the public debt was correspondingly diminished.

The Royal Bank’s original capital stock was procured by means of an imperative decree, which ordered that the Bank should have first mortgage rights on all real estate, at six per cent. of its value. This first mortgage right should precede all others, and the Bank’s claims or assessments, unless paid in silver by the parties concerned, should bear interest at six and a half per cent. in standard silver. The King, nevertheless, promised to relieve the land-owners of this new burden by granting them a rebatement of taxes, to the extent of five-sixths of the Bank’s assessments. The annual proceeds of the Bank’s assessments were to be applied partly toward the accumulation of a silver reserve, partly toward the retirement of bank notes until the outstanding circulation should be in proper proportion to the demands of trade. The Bank might issue notes to the amount of 46,000,000 rix-dollars, of which 27,000,000 should be applied to the redemption of the older notes; 4,000,000 to a loan fund; and 15,000,000 to a reserve fund for extraordinary State expenses. For this reserve fund there should also be an issue of 10,000,000 rix-dollars in non-redeemable silver bonds; for the interest and extinction of which the Bank should annually expend 600,000 rix-dollars in silver. Finally, the Royal Bank was to pay an annual sum of 350,000 rix-dollars for interest on such bonds as it issued on occasion of redeeming bank notes which circulated in the duchies. The 46,000,000 rix-dollars which the Bank issued in bank notes should circulate in Denmark, Norway, and the duchies. But the latter provinces, whose currency had been essentially reformed by the help of the Specie Bank in Altona, protested against any circulation of bank notes; and the concession was then allowed, that whilst notes should be allowed to circulate, yet silver might be insisted upon in payments (for the ducal countries). At the Peace of Kiel, in 1814, Norway was again separated from Denmark; and the whole issue of notes, except some 8,000,000 rix-dollars already issued in Norway, rested upon Denmark, to the amount of 38,000,000 rix-dollars (76,000,000 crowns). At the start, therefore, the new Royal Bank notes were very unsatisfactory currency. The rate of exchange in 1814 was from 550 to 600 rix-dollars to 100 specie dollars; the par value being 200 rix-dollars to 100 specie. The Royal Bank, as its name implies, was a State institution; but the Government, in order to increase public confidence in the new financial organization, promised that this recent bank should become a private institution, under a national board of trustees. It should operate under their administration, and the surplus which might accrue in course of time, should belong to the shareholders—especially to the mortgaged subscribers, or land-owners. Meanwhile, this promise was of little avail to improve the condition of the depreciated bank notes. Their first real improvement occurred when the war ceased in 1814, and with it the prevailing confusion in all economic spheres.

NEW NATIONAL BANK.

The pledge of transforming the Royal Bank into a private bank was fulfilled in 1818, by the grant of July 4th, providing that from August 1st of the same year, the Bank should be reorganized under the name of “National Bank,” and on the basis of a private joint-stock company. The National Bank’s capital stock was obtained like that of the Royal Bank; townspeople should contribute to the Bank six per cent. of their property, and this assessment should bear six and a half per cent. annual interest in silver till fully paid. Landed proprietors were to contribute one per cent. of their property; and in addition, they were to pay six and a half per cent. annual interest on five per cent. of their valuation, until all the Royal Bank notes (about 31,000,000 rix-dollars) were redeemed or covered with a corresponding coin reserve in silver. But the interest thus paid should be deducted from the proprietors’ land taxes; or, in other words, the State applied the required amount of these taxes to paying five-sixths of the land-owners’ original dues to the National Bank. By way of compensation, the land-owners should thenceforth be entitled to redeem only one per cent. of their original assessment, and they should likewise become shareholders to only one-sixth of that amount. The remaining five-sixths should be unredeemable on both sides. Forasmuch as the contributors assessed in the duchies were mainly unwilling to engage in this kind of contract with the Bank, they were permitted to pay outright that portion of the bank notes and bonded obligations which fell to the duchies; and so be released from attachments to the Bank. The total capital stock was nearly 8,000,000 rix-dollars, of which 1,600,000 had devolved upon the duchies. As it was also allowed to supplement the Bank’s assessments with cash payments in round sums, in order to realize a proportionate increase of capital stock, and as it later appeared that bank shares were a very profitable sort of property, the amount of stock was soon increased, by such payments, to a total of 13,500,000 rix-dollars (27,000,000 crowns); and this is its present status.

[* ] See Marcus Rubin, 1807-14; Copenhagen, 1892. Also, Falbe Hansen and W. Scharling’s “Statistics of Denmark,” vol. in; Copenhagen, 1878.

[† ] Assignat, Exchange, and Loan Bank of Copenhagen.