Johan Palmstruch
Encyclopedia
Johan Palmstruch was a Dutch
merchant credited with the introduction of paper money
to Europe. He became a commissioner in the National Board of Trade after his arrival in Sweden
in 1647 and began submitting proposals for banking institutions to King Charles X Gustav
in the 1650s. The first two such proposals were rejected but the third, which promised half the bank's profits to the crown, was accepted.
Stockholms Banco
was thus founded in 1657 with Palmstruch appointed as general manager. The bank itself was nothing new as it was simply an imitation of the successful public deposit banks of Amsterdam and Hamburg, however Palmstruch himself added two important innovations. The first of these was to use money deposited into accounts at the bank to finance loan
s, however this soon became a problem as the deposits were usually short-term and the loans long-term, meaning that deposited money was unavailable to be withdrawn by account holders. Palmstruch's second innovation, and his solution to this problem, was the introduction in 1661 of Kreditivsedlar ("credit paper"), the first European banknote
s, which would be exchangeable at any time for the metal coins they were replacing. These were very successful, but the bank began lending more than it could afford and printed too many banknotes without the necessary collateral, leading to the bank's collapse in 1668.
Palmstruch was charged with irresponsible book-keeping
and with not having the cash to repay these credit notes due to miscalculation and omissions in his book-keeping. He was unable to make up this shortage and in 1668 was sentenced to loss of his title, loss of his banking privilege, and eternal exile or death. The government reprieved the death penalty
and Palmstruch was instead imprisoned. He remained in prison until 1670 and died the following year at the age of 60.
Netherlands
The Netherlands is a constituent country of the Kingdom of the Netherlands, located mainly in North-West Europe and with several islands in the Caribbean. Mainland Netherlands borders the North Sea to the north and west, Belgium to the south, and Germany to the east, and shares maritime borders...
merchant credited with the introduction of paper money
Banknote
A banknote is a kind of negotiable instrument, a promissory note made by a bank payable to the bearer on demand, used as money, and in many jurisdictions is legal tender. In addition to coins, banknotes make up the cash or bearer forms of all modern fiat money...
to Europe. He became a commissioner in the National Board of Trade after his arrival in Sweden
Sweden
Sweden , officially the Kingdom of Sweden , is a Nordic country on the Scandinavian Peninsula in Northern Europe. Sweden borders with Norway and Finland and is connected to Denmark by a bridge-tunnel across the Öresund....
in 1647 and began submitting proposals for banking institutions to King Charles X Gustav
Charles X Gustav of Sweden
Charles X Gustav also Carl Gustav, was King of Sweden from 1654 until his death. He was the son of John Casimir, Count Palatine of Zweibrücken-Kleeburg and Catherine of Sweden. After his father's death he also succeeded him as Pfalzgraf. He was married to Hedwig Eleonora of Holstein-Gottorp, who...
in the 1650s. The first two such proposals were rejected but the third, which promised half the bank's profits to the crown, was accepted.
Stockholms Banco
Stockholms Banco
Stockholms Banco in Sweden was the first European bank to print banknotes. The bank was founded in 1657 by Johan Palmstruch and began printing banknotes in 1661...
was thus founded in 1657 with Palmstruch appointed as general manager. The bank itself was nothing new as it was simply an imitation of the successful public deposit banks of Amsterdam and Hamburg, however Palmstruch himself added two important innovations. The first of these was to use money deposited into accounts at the bank to finance loan
Loan
A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower....
s, however this soon became a problem as the deposits were usually short-term and the loans long-term, meaning that deposited money was unavailable to be withdrawn by account holders. Palmstruch's second innovation, and his solution to this problem, was the introduction in 1661 of Kreditivsedlar ("credit paper"), the first European banknote
Banknote
A banknote is a kind of negotiable instrument, a promissory note made by a bank payable to the bearer on demand, used as money, and in many jurisdictions is legal tender. In addition to coins, banknotes make up the cash or bearer forms of all modern fiat money...
s, which would be exchangeable at any time for the metal coins they were replacing. These were very successful, but the bank began lending more than it could afford and printed too many banknotes without the necessary collateral, leading to the bank's collapse in 1668.
Palmstruch was charged with irresponsible book-keeping
Accountancy
Accountancy is the process of communicating financial information about a business entity to users such as shareholders and managers. The communication is generally in the form of financial statements that show in money terms the economic resources under the control of management; the art lies in...
and with not having the cash to repay these credit notes due to miscalculation and omissions in his book-keeping. He was unable to make up this shortage and in 1668 was sentenced to loss of his title, loss of his banking privilege, and eternal exile or death. The government reprieved the death penalty
Capital punishment
Capital punishment, the death penalty, or execution is the sentence of death upon a person by the state as a punishment for an offence. Crimes that can result in a death penalty are known as capital crimes or capital offences. The term capital originates from the Latin capitalis, literally...
and Palmstruch was instead imprisoned. He remained in prison until 1670 and died the following year at the age of 60.