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3 Some Comparisons with the Post-World War II Systems

3 Some Comparisons with the Post-World War II Systems

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The Origins and Nature of Scandinavian Central Banking

In the case of a few large countries, particularly England and France,

the confidence that no changes would be made was virtually unlimited

before the Great War, just like the confidence in the US dollar between

1945 and the late 1960s––a mere 25 year period. Not yet fully implemented by the late 1950s, Bretton Woods broke down in 1971–73.

Starting with some 40 members, quickly growing to more than 150,

cohesion and strict observance by the Bretton Woods members on contractual rules are, of course, difficult to expect. It was easier with the

three-member SCU.

The really new aspects of Bretton Woods (from an institutional point

of view) was, first, that it was officially recognized that exchange rates

could be changed––in case of “fundamental imbalances”––and, secondly,

that multilateral credit institutions were set up to finance deficit countries

(the IMF for short-term credits and the IBRD for long-term structural

requirements). Rules were established for changing par values of currencies, even if those rules were unclear and difficult to enforce.

In spite of the multilateral finance institutions created to support the

fixed exchange rate regime of Bretton Woods, it lasted much shorter than

either of the LCU or the SCU, except that the Bretton Woods institutions still exist and operate much as originally intended.

6.3.2 Some Comparisons with the European Currency


With the present European Currency Union in mind, including a common central bank, a “stability pact”, and several government and central

bank committees, it seems surprising that the Scandinavian Currency

Union could work smoothly for nearly 40 years with a minimum of cooperation among the three governments and the three note-issuing banks,

and a minimum of contractual framework. The 1873 Mint Convention

consisted of only 17 brief paragraphs, and nothing was said or done about

co-ordination of economic or monetary policies.

The only thing hinting at the thought that some sort of co-operation

among the Scandinavian countries might be useful at some point of time

was the § 13 and § 14 of the 1873 Mint Convention. § 13 gave each


The Scandinavian Currency Union (1873–1914)


of the three countries the right to examine the coins minted by the two

others to see if they conformed to the agreed standards of weight and

fineness. § 14 is, perhaps, more revealing (my translation):

The financial authority of each of the countries will inform the financial

authority in the two other countries about all laws, decrees, and general

stipulations relating to the mint conditions, which might be decided for

the execution of this Convention, or which might be cancelled in the

future. Likewise, the financial authorities will provide each other with an

annual report on the minting of new coins in the past year, and on withdrawals and melting down of old ones. Samples of new coins to be minted

will also be exchanged.19

It could seem that with § 14 in force, the three countries might just

as well have created a common minting institution (had it not been

for the problems and costs of distributing the coins). The word “financial authority” (Finansbestyrelse) takes into account the different formal

arrangements in the three different countries. Essentially, it meant the

respective ministries of finance and the Royal Mints, but not the central


Apart from the absence of a common monetary authority, the lack of

co-ordinated monetary policies, and the weak co-operation among the

central banks, the SCU was very much like the eurozone. However, during its lifetime it worked.


“Ethver Riges Finansbestyrelse vil meddele Finansbestyrelsen i de to andre Riger all,

Møntforholdene vedkommende love, Anordninger og almindelige Bestemmelser, som måtte blive

udgivne til Udførelse af nærværende Overenskomst, eller som i Fremtiden måtte udgå. Ligeledes

ville Finansbetyrelserne meddele hverandre en aarlig Beretning om de af. dem i Aarets Løb foretagne Udprægninger af nye Mønter og om Inddragelser og Indsmeltninger af gamle Mønter samt

oversende hverandre Exemplarer af alle Mønter, som herefter udpræges.”


How the Great War Formed

Scandinavian Central Banking


The External Financial Position

of the Scandinavian Countries in 1914

The rapid industrialization and urbanization sweeping through

Scandinavia during the 1890s and early 20th century left all three countries with sizeable net foreign debts by 1914. Large sums were owed to

German, British, French, Swiss, and American banks, and large amounts

of Scandinavian bonds and stocks were circulating on the stock exchanges,

particularly in Berlin and Paris.1 Also, large blocks of real estate in the

Scandinavian capitals had been acquired by German and British insurance companies.


Estimates of the amounts have been made, and some figures are known (public sector debts), but

comprehensive and reliable statistics including private sector assets and liabilities are not available

for these years, except for Denmark (to some extent). For Sweden the amounts of foreign debts and

assets are available for the banking sector (Sveriges Riksbank, Vol. V), and various estimates have

been made for the period 1850–1940, cfr. L.  Schön (1989) Kapitalimport, kreditmarknad och

industrialisering 1850–1910, in E.  Dahmén, ed, (1989.) Upplåning och utvrckling I 200 år


© The Editor(s) (if applicable) and The Author(s) 2016

S.E. Andersen, The Origins and Nature of Scandinavian Central

Banking, Palgrave Macmillan Studies in Banking and Financial

Institutions, DOI 10.1007/978-3-319-39750-4_7



The Origins and Nature of Scandinavian Central Banking

The eruption of the Great War changed the scene completely. The

new situation crystallized the role played by or assigned to the noteissuing banks, and helped clarify their responsibilities. The Four Criteria

emerged more clearly, because the issues became more clearly carved out.

The effect was that the Four Criteria became fulfilled more quickly and

to a higher degree.

From 1914 and throughout the war, all three Scandinavian countries

mostly had large surpluses on their foreign payments, both because of

reduced imports and because of better prices for their exports. By the end

of the war, the foreign debts had largely been repaid.

All three Scandinavian countries were heavily dependent on foreign

trade. When war broke out the problem was to maintain foreign trade

without compromising neutrality. Negotiations on foreign trade, embargoes, and mining of traditional shipping lanes became crucial.

Table 7.1 illustrates the case of Denmark. It is clearly seen that in the

first ten years of the 20th century the Danish foreign net debts exceeded

one year’s export income and that already in the second war year the net

debts could be paid off with a few months of exports. There is not much

reason to believe that this picture was very different in the two other

countries, although this is more difficult to substantiate.

On August 1, 1914, the Norwegian government issued a declaration

of neutrality, followed by a similar Danish declaration on August 3 and a

joint Norwegian–Swedish declaration of neutrality on August 8. A joint

Scandinavian declaration came in November following much discussion.

Table 7.1 Danish foreign debts and assets, selected years 1907–22

Mill. DKK

Fixed assets

Current assets

Total assets

Short liabilities

Long liabilities

Total liabilities

Net assets

Visible exports

Gross domestic product


























































Sources: Assets and debts: Statistisk Årbog, 1923. GDP and exports: H. Chr.

Johansen (1985) Dansk økonomisk statistik (vol 9 of Danmarks Historie, vol.

1–9, (Gyldendal)

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