Europe's First Paper Banknotes Ended in a Death Sentence
In 1661, Sweden’s Stockholms Banco issued Europe’s first official paper banknotes to replace heavy copper coins. Initially a huge success, the bank quickly printed far more paper money than it could back with actual metal. When depositors rushed to exchange their paper back to copper, the bank collapsed. The bank's founder, Johan Palmstruch, was blamed for the disaster and sentenced to death, though his sentence was later commuted.
The Heavy Reality of Copper Money
In the seventeenth century, Sweden faced a unique monetary dilemma caused by its vast domestic copper reserves. To support the domestic mining industry and finance its military campaigns across Northern Europe, the Swedish Crown minted huge, flat copper sheets known as plåtmynt. These copper plate coins were legal tender, but their low value density compared to gold or silver made day-to-day commerce extraordinarily cumbersome. A single high-value payment could require several copper plates, each weighing several kilograms, necessitating wheelbarrows or carts simply to conduct routine transactions.
The sheer weight and bulk of copper plate money created severe friction in Swedish trade. Merchants and citizens routinely struggled to store, protect, and transport these physical slabs of metal. Storing them required substantial physical space, and moving funds across Swedish territory incurred significant transport costs and security risks. The financial system was ripe for an innovation that could divorce the transaction of value from the physical movement of tons of base metal.
Johan Palmstruch and the Founding of Stockholms Banco
Into this environment stepped Johan Palmstruch, an entrepreneur and financier born in Riga. Recognizing that Sweden needed modern commercial institutions similar to those operating in Amsterdam and Hamburg, Palmstruch petitioned the Swedish Crown to establish a formal bank. In the 1650s, King Charles X Gustav granted a royal charter authorizing Palmstruch to establish Stockholms Banco, Sweden's first institutional banking house.
The bank was organized into two distinct branches: an exchange bank (växelbanken) and a loan bank (lånebanken). The exchange branch took in deposits of specie, including the unwieldy copper plates and rarer silver coins, allowing depositors to transfer funds between accounts on the bank's ledgers. The loan branch, meanwhile, issued credit against pledged collateral and property. This dual structure established the framework for a revolutionary step in European monetary history.