Death of a Reserve Currency
Stephen Quinn and William Roberds
Working Paper 2014-17
The Dutch bank florin was the dominant currency in Europe during much of the 17th and 18th centuries. The florin, a fiat money, was managed by an early central bank, the Bank of Amsterdam. Using a new reconstruction of the Bank of Amsterdam's balance sheet, we analyze the florin's loss of reserve currency status during the period 1781–92. The reconstruction shows that by 1784, accommodative policies rendered the Bank of Amsterdam "policy insolvent," meaning that its net worth would have been negative under continuation of its policy objectives. Policy insolvency coincided with the Bank of Amsterdam's loss of control over the value of its money.
JEL classification: E58, F33, N13
Key words: central banks, reserve currency, policy insolvency
The authors are grateful to Joost Jonker, Elizabeth Klee, Angela Redish, Peter Stella, Larry Wall, Warren Weber, seminar participants at De Nederlandsche Bank, participants in the All-UC Conference on Central Banking in Historical Perspective, the Caltech Early Modern Group, and the Dutch-Belgian Finance and History Workshop for comments on earlier drafts. The authors are also indebted to Christiaan van Bochove and Joost Jonker for sharing their data on East India Company bond prices. Pamela Frisbee provided research assistance. Data collection for this project was conducted while the second author was a visiting scholar at De Nederlandsche Bank. The views expressed here are the authors' and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors' responsibility.
Please address questions regarding content to Stephen Quinn, Department of Economics, Texas Christian University, TCU Box 298510, 2855 Main Drive, Fort Worth, TX 76129, 817-257-6234, email@example.com; or William Roberds, Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30309-4470, 404-498-8970, firstname.lastname@example.org.