2 - What Came Before: Dano-Norwegian Experience, Monetary Upheaval and a New Bank of Issue

Summary

Introduction

The chartering of Norges Bank in 1816 heralded what became a new era in Norwegian monetary and financial history. For the first time since the Middle Ages Norway gained a viable domestic currency separate from that of its union partner. This step was important. Not only as a political demarcation vis-à-vis Sweden but maybe even more important in terms of the economic and financial structures that monetary stabilisation on Norway's own keel brought about. Without entering deeply into the counterfactual, a common currency in the years after 1814 would have altered the monetary history of both countries and arguably also enhanced the sustainability of the institutions that bound them together. Instead 1816 became year 1 in the modern monetary history of Norway.

This chapter, in essence, is about what came before: the monetary experience of the Dano-Norwegian realm, the prevailing financial and economic structures at work and the devastating deterioration of the domestic currency system after 1807. Our study here will not track the monetary history back to the beginning of human exchange of goods and services. Nor will we offer much for those appreciating numismatic detail. Our aim is to provide a context, establishing a sense of the time in which Norway took the first, tentative steps into what can be described as the modern money world. As such the chapter points forward; the criterion for what is covered is in which way what came before can enlighten our understanding of what came after.

In the last half of the eighteenth century paper money became the primary medium of exchange and unit of account in Norway. By 1814, Norwegians ‘talked and counted’ in notes. Although paper failed utterly as a store of value during the years of war-induced monetary expansion from 1807 onwards, for most of the Danish era paper money maintained fairly stable values in terms of silver. This reflected partly that inconvertibility was not the same as amonetary policy freed from constraints. The king had an interest in providing stability, as a common good, for the benefit of his own tax system and not least in order to preserve his own credibility and access to future credit. Although putting the printing press in the hands of an absolute monarch is a bad idea, most of the time the king behaved with restraint at least when war was not looming.