Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/336457 
Year of Publication: 
2025
Series/Report no.: 
Sveriges Riksbank Working Paper Series No. 454
Publisher: 
Sveriges Riksbank, Stockholm
Abstract: 
Private money creation lies at the heart of currency competition due to seigniorage rents that are an important contributor to banks' franchise values. However, it undermines the role of central bank in money provision and has been historically a contentious issue. As shifting from private to public money may come at a cost of bank disintermediation and affect economic growth, such a swap should be well-planned to minimize its costs. In this paper, we study the transition from private to public money in a historical context. The 1897 banking law in Sweden granted the banknote monopoly to the Swedish central bank. To facilitate the shift, the central bank provided preferential liquidity support to formerly note-issuing private banks. Drawing on newly digitized monthly archival data, we show that this liquidity provision played a critical role in shaping private banks' performances during the transition. Once the support started being withdrawn, affected banks experienced a 23% drop in profitability. No signs of bank disintermediation are found.
Subjects: 
Money and Banking
Inside Money
Outside Money
Bank Profitability
Bank Lending
Banknote Monopoly
JEL: 
E42
E5
G21
G28
N23
Document Type: 
Working Paper

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