The MoneyHatch Newsletter, Edition 9

March 11th, 2025

Editor’s Note: The Time Sweden’s Central Bank Almost Killed Cash Before It Started

Sweden was the first country in Europe to experiment with paper money, and it failed spectacularly!

In the 1660s, when money was still literal metal, its value was in the material itself. The Swedish government decided to introduce lighter coins—which people hated because, even though they were easier to carry, the metal was worth less. In response, depositors rushed to the bank to withdraw their old, heavier, more valuable coins. This led to one small problem.

Sweden’s only bank at the time, Stockholms Banco, didn’t have enough of those old coins to give back. So instead, they handed out deposit certificates (credit notes): fancy IOUs that promised people could exchange them for their coins later.

Not only did depositors go along with it, but these credit notes became so popular that the bank started issuing them as loans, without actually having enough physical coins to back them up.

And eventually just like that, the world got its first real experience with inflation. Too many credit notes flooded the market, and when people realized the bank didn’t actually have their coins, panic set in. Depositors demanded their money, the bank demanded loan repayments, and everyone ended up exactly where they started – except this time, it ended in a bank failure.

The collapse of Stockholms Banco forced the Swedish Riksdag to step in, establishing the Riksens Ständers Bank in 1668, known today as Sveriges Riksbank, the world’s oldest central bank.

This Swedish experience is a reminder of the importance of prudent monetary policy and maintaining public trust in financial institutions. Also, it’s a good reminder that money only works if the people believe in it. (And speaking of belief, isn’t it wild that we now have $305 trillion in global debt? But hey, as long as we all keep pretending it’s fine… right? Right?)

Warm regards,

The MoneyHatch Team

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