1 - A Monetary History in Five Parts

Summary

Introduction

In simplistic language monetary history deals with money, its different forms and uses over the course of history and the different institutions involved in producing it. The concept of money is, however, intrinsically connected with a society's payment system and its institutions. Irrespective of whether money predominantly circulates among the general public in the form of coins and bank notes, as was the case in the eighteenth and early nineteenth century, or, as is the case in modern societies of the twentieth and twenty-first century, of money mainly appearing in the form of bank deposits, a well-functioning payment system is always built on trust. Historically, the general public had to trust the issuer of coins, typically the sovereign, to preserve the value of his coins and restrain himself from debasement or clipping. Likewise the issuers of bank notes had to be trusted that they would restrain themselves from the temptation of letting the printing works run, such that the overissuing of bank notes led to the undermining of their value. Finally, as deposits in private banks gradually evolved to become the main component of modern societies’ money stock, the general public would need to have a similar faith in the banks with whom they entrusted their funds, believing that the banks could be trusted as custodians of their deposits. We will in the following denote the sum of the general public holdings of coins, bank notes and bank deposits as ‘broad money’, and we will often refer to this as M2 or ‘the money stock’, as is common in the literature on monetary aggregates.

A monetary history of Norway over the past two centuries spans a period that starts dramatically with Norway leaving the union with Denmark in 1814. Norway's monetary system was in a chaotic state and had to be completely redesigned from scratch. In the following years Norway transited from a tight union with Denmark, without her own national institutions, to enter into a loose union with Sweden. All main national institutions of Norway – its parliament, central government departments, supreme court, national auditing and a bank of issue, Norges Bank, all separate from the similar Swedish institutions – were all established in the formative years 1814–1816.