In the 17th century, Amsterdam grew into the world’s financial epicentre. Between the smell of spices, the hubbub of the stock exchange and the sloshing of the canals, a quiet revolution took place: the establishment of the Amsterdam Exchange Bank in 1609. An innovative institution that brought peace to the chaos of international trade, and was emulated far beyond our borders.
The podcast series Amsterdam’s Trading Culture – From the Golden Age to Now focuses this time on the Wisselbank. What made this bank so innovative? And what traces of this 17th-century institution can we still see today in the way we organise our financial system?
Chaos in currency circulation
Amsterdam was a bustling metropolis with intense trading activity in the early 17th century. Merchants from all over Europe came to the city to trade in goods, ships’ holdings and financial products. But the economic boom had a downside: hundreds of different coins were in circulation in the city, each with its own weight and content. Exchange rates changed daily, and counterfeiting was the order of the day.
The solution came in the form of the Wisselbank. This city bank, established under the supervision of the Amsterdam city council, enabled merchants to convert their cash into ‘bank money’: an accounting balance at the bank, based on silver of a fixed quality. This not only introduced a uniform standard, but also created a new mode of trust essential for any trading city.
Trust as currency
What made the Wisselbank unique was the fact that it was not a commercial bank, but a neutral repository of value. No loans were granted (at least in theory), no interest was paid: the bank was there purely to provide security and reliability. And that worked. Traders could conduct transactions without actually moving silver or gold, a revolutionary idea at a time when physical coins were still the norm.
The Exchange Bank’s stability became visible even during moments of financial crisis. During the famous tulip mania of the 1630s, when the price of tulip bulbs soared to absurd heights, the Wisselbank continued to function as an anchor of confidence. And even in the disaster year 1672, when the country was attacked by several foreign powers and political chaos reigned, the bank paid out without a hitch. That trust proved to be worth its weight in gold.
Parallels with today
Although the Wisselbank was eventually dissolved in 1820 partly because of secret loans to the VOC and the changing geopolitical playing field, its legacy lives on. Modern central banks, such as De Nederlandsche Bank and the European Central Bank, are built on principles that originated in Amsterdam: stability, supervision and the prevention of systemic risks.
Especially since the 2008 financial crisis, the importance of such institutions has been re-emphasised. Nowadays, banks are required to draw up so-called recovery and resolution plans so that they can fail in an orderly manner without the need for taxpayers’ money. Recent takeovers, such as that of Credit Suisse by UBS, also show how sharp supervision has become, and how valuable it remains to exude confidence as a bank.
New bubbles, old lessons
Tulip mania may seem like an exotic story from the distant past, but the dynamics behind it are still alive and well. Cryptocurrencies, for example, have similar patterns: speculation, lack of central guarantees, and the hope that someone else is willing to pay more the so-called greater fool theory. While central banks are largely removed from this, supervision of financial institutions remains crucial to prevent wider damage.
The echo of Amsterdam
The establishment of the Exchange Bank in 1609 marks more than just a historical fact: it is the beginning of a way of thinking about money, trust and systemic security that continues to this day. At a time when the financial system is under constant pressure, this history reminds us that stability rarely comes naturally. But also that innovative solutions can come from unexpected quarters, such as from a city that started as a fishing settlement 750 years ago, and grew into a global financial player.
Curious about the other blogs in this blog series Amsterdam’s Trading Culture, click here, or listen to the podcast series here.
