Digression on Bank Deposits, particularly of Amsterdam

¹² A big state, such as England, can have its currency consist almost entirely of its own coin. Should this currency be worn, clipt, or degraded below its standard value, the coin’s reform can re-establish its currency.

But a small state, such as Genoa or Hamburgh, can seldom have its currency all consist of its own coin.

• It must be made up of the coins of the states it transacts with.
• Such a state will not always be able to reform its currency by reforming its coin.

If foreign bills of exchange are paid in this currency with an uncertain value, the exchange will always be very much against the small state. Because its currency is necessarily valued even below what it is worth.

¹³ To remedy this inconvenience, small states frequently required certain foreign bills of exchange to be paid by the credit of a bank protected by the state.

Such bills were not paid by in common currency. This bank was always obliged to pay in true money to the state’s standard. The banks of Venice, Genoa, Amsterdam, Hamburgh, and Nuremberg, were all originally established with this view. Some of them later served other purposes. The money of such banks were better than the country’s common currency. It necessarily bore an agio . The agio depended on how degraded the currency was below the state’s standard The Bank of Hamburgh’s agio is about 14%. 14% is the supposed difference between= the good standard money of the state, and the clipt and worn currency from neighbouring states.

14 Before 1609, many clipt and worn foreign coins were brought into Amsterdam from Europe.

This reduced the value of Amsterdam’s circulating currency, around 9% below that of good money fresh from the mint. The good money was quickly melted down or carried away, as it always is in such circumstances. The merchants had plenty of worn currency. They could not always find good currency to pay their bills of exchange. The value of those bills became uncertain despite several regulations to prevent it.

Bank Money

¹⁵ To remedy these inconveniences, a bank was established in 1609 under the city’s guarantee.

This bank received= foreign coins, and local worn coins at its real good standard value. It deducted only the cost of coinage and management. It credited its books for the value which remained after this small deduction. This credit was called ‘bank money’. It represented money exactly according to the mint’s standard. It was always of the same real value. It was intrinsically worth more than current money. It was also enacted that all bills drawn on or negotiated at Amsterdam worth 600 guilders or more, should be paid in bank money. This immediately removed all uncertainty in the value of those bills. Because of this regulation, every merchant was obliged to keep an account with the bank to pay his foreign bills of exchange. It created a demand for bank money.

16 Bank money’s advantages were the following=

It had an intrinsic superiority to currency. It had an additional value because of this demand. It is secure from fire, robbery, and other accidents. The city of Amsterdam is bound for it. It can be paid away by a simple transfer, without the= trouble of counting, or risk in transportation.

Because of those advantages, it bore an agio in the beginning.

All the money originally deposited in the bank was believed to remain there. Nobody cared to demand payment of a debt which he could sell for a premium in the market. By demanding payment from the bank, the owner of a bank credit would lose this premium. A new shilling from the mint will buy the same goods as a worn shilling. The bank’s good money, being mixed with the local common currency, would be of no more value than the local common currency. While it remained in the bank, its superiority was known and ascertained. When it went to a private person, its superiority could only be ascertained through more trouble than the difference was worth. By being removed from the bank, it lost all the other advantages of bank money= its security its easy and safe transferability its use in paying foreign bills of exchange Above all, it could not be removed from the bank without previously paying for the storage.

17 Those coin deposits were the bank’s original capital, represented by bank money.

Presently, coin deposits make up a very small part of the bank’s capital. To facilitate the trade in bullion, it gave credit in its books on gold and silver bullion deposits for many years. This credit is around 5% below the mint price of such bullion. At the same time, the bank grants a receipt. It entitles the depositor to withdraw the bullion any time within six months in exchange for bank money equal to the credit given in its books when the deposit was made. The depositor paid 0.25% for storing silver and 0.5% for storing gold. In default of such payment and on expiration of this term, the deposit would belong to the bank at the price it was received. The amount paid for storage may be considered as a warehouse rent. This rent was dearer for gold than for silver because= the fineness of gold is more difficult to be ascertained than silver, frauds are more easily practised with gold, the state encourages deposits of silver over gold as the standard metal.

18 Bullion deposits are commonly made when its price is lower than ordinary.

They are withdrawn when it happens to rise. In Holland, the market price of bullion is generally above the mint price, for the same reason that it was above the mint price in England before the recent gold coin reformation. The difference is commonly 6-16 stivers on the mark, or 8 ounces of silver of 11 parts fine and one part alloy. The bank price is 22 guilders the mark, when made in foreign coin of a known fineness, such as Mexico dollars. The bank price is the credit which the bank gives for deposits of such silver. The mint price is about 23 guilders. The market price is from 23 guilders 6, to 23 guilders 16 stivers, or from 2% to 3% above the mint price. The proportions between the bank price, mint price, and market price of gold bullion are nearly the same. A person can generally sell his receipt for the difference between the mint price of bullion and the market price. A receipt for bullion is almost always worth something. Very seldom do people allow their receipts to expire. No one would allow his bullion to fall to the bank by= not withdrawing it before the end of the six months, or neglecting to pay the 0.25% or 0.5% to obtain a new receipt for another six months This sometimes happens with regard to gold than with silver because of the higher warehouse-rent for gold.

• [20 stivers = 1 guilder]

Below are the prices the bank of Amsterdam presently {September 1775} receives bullion and coin= Silver Guilders per mark Mexico dollars 22 French crowns 22 English silver coin 22 Mexico dollars new coin 21 20 Ducatoons 3 0 Rix dollars 2 0 Bar silver with 11-12ths fine silver 21 10 Fine bars 28 guilders/mark Gold= Guilders per mark Portugal coin 310 Guineas 310 Louis d’ors, new 310 Ditto old 300 New ducats 4 19 8 per ducat