In This Story
In seventeenth-century Sweden, some coins were so heavy that moving money could become a physical problem. The largest copper plate coins weighed almost 20 kilograms. They contained real metal, carried official monetary values, and were legal instruments of payment—but they were spectacularly inconvenient for commerce.
In 1661, a Stockholm bank introduced a lighter alternative: paper notes that people could exchange for coins. The innovation promised to make payments easier and credit more accessible.
Within a few years, however, the bank was struggling to redeem its own promises. Its notes traded below their stated value, customers demanded metal instead of paper, and the government ordered the experiment dismantled.
The story of Stockholms Banco was not simply about printing too much money. It was about a troubled currency system, expanding credit, government decisions, and the fragile relationship between financial innovation and public trust.
Why Sweden Created Coins Weighing Almost 20 Kilograms
During the seventeenth century, Sweden was a significant European producer of copper. The Falun mining district supplied a metal that supported exports, government revenues, and the country’s wider economic ambitions.
But copper created an unusual monetary problem.
Gold and silver were valuable enough that relatively small coins could represent substantial sums. Copper was worth considerably less by weight. If a copper coin was expected to contain metal approaching its official value, a large payment required a large quantity of copper.
Sweden introduced copper coinage in 1624, partly in response to shortages of silver money. The authorities also hoped that turning copper into domestic currency would absorb some of the country’s output and support the metal’s commercial value.
In 1644, Sweden began experimenting with large rectangular copper plate coins. These were not ordinary coins enlarged for ceremonial purposes. They were functioning money, stamped with official marks that established their denomination.
The most extraordinary example was a 10-daler copper plate weighing approximately 19.7 kilograms, with dimensions of roughly 33 by 62.5 centimetres.
A single coin could be heavier than a packed suitcase.
The Cost of Transporting Money
For merchants, tax collectors, and other people handling significant payments, the problem extended beyond inconvenience.
Heavy coins increased transportation costs, complicated storage, and made transactions harder to organise. Moving a substantial sum might require carts, additional labour, and security.
The plates were not used for every small purchase. Smaller denominations and other forms of money continued to circulate. But large copper payments created real obstacles for commercial activity.
There was another difficulty: Sweden did not operate with one perfectly uniform currency.
Copper money circulated alongside silver-based units, including different forms of the daler and the internationally recognised riksdaler. Their relative values could change.
A sum expressed in daler copper money was not automatically equivalent to the same numerical sum expressed in daler silver money.
This mattered whenever merchants exchanged currencies, settled contracts, or assessed the value of a payment.
Sweden’s monetary problem was therefore both physical and financial. Its coins were cumbersome, while the relationships between its different currencies were unstable.
Those conditions created an opportunity for banking.
Stockholms Banco: A Bank Built for Copper Money
The central figure was Johan Palmstruch, a financier with experience in the commercial world of the Netherlands.
Palmstruch wanted to establish a bank that could handle deposits, simplify payments, and provide loans.
In November 1656, King Charles X Gustav granted privileges for an exchange bank and a lending bank. The institution became known as Stockholms Banco, and its operations began in July 1657.
The idea was attractive because a bank could separate the physical movement of money from the transfer of financial value.
A merchant could deposit cumbersome copper plates and then arrange payments through the bank’s accounts. Instead of transporting metal to complete every transaction, customers could transfer claims recorded in the bank’s books.
This was particularly useful in a commercial centre such as Stockholm.
The bank was also more closely connected to government than a simple description of it as a private business might suggest.
Although Palmstruch and his associates received the original privileges, the Crown exercised important powers over the institution. The arrangements allocated half of its net profits to the Crown, while the remaining half was divided between Stockholm and Palmstruch’s company.
Senior officials and influential members of the nobility were involved in its affairs.
Deposits and Loans Were Different Businesses
The original banking arrangements distinguished between two activities.
The exchange bank received deposits and facilitated payments. Customers expected to recover their money according to the terms of their accounts.
The lending bank extended credit to borrowers against acceptable security.
In practice, the distinction became increasingly blurred.
Stockholms Banco began lending funds placed with the exchange bank. This allowed deposits to support economic activity, but it introduced a serious risk.
Money deposited for immediate withdrawal could be committed to loans that would not be repaid immediately.
A customer might demand coins today, while the bank’s borrower would not repay a loan for several months.
As long as withdrawals remained manageable, the system could function. If many depositors demanded payment simultaneously, the bank could run short of readily available money.
That weakness would become central to the crisis.
The Currency Decision That Triggered a Bank Run
The first major shock arrived before Stockholm Banco introduced its famous banknotes.
In 1660, Swedish authorities changed the monetary terms under which copper coins were produced, allowing newly minted coins to contain less copper for a given monetary value.
This created an important distinction between older, heavier copper money and newer, lighter issues.
The older plates could possess greater value as metal than their nominally equivalent replacements.
For people who had deposited older copper coins at Stockholms Banco, the incentive was clear: withdraw the valuable coins rather than leave them in the bank.
Customers began demanding their deposits back.
The bank faced an especially difficult situation because its rules required repayment in the appropriate kind of money. It could not freely substitute different coin types whenever its reserves of a particular issue became insufficient.
Meanwhile, some of the deposited funds had already been lent to borrowers.
Stockholms Banco now faced a bank run—a rush of withdrawals that exceeded the money it could immediately provide.
The bank responded by restricting lending and attempting to recover outstanding loans. It also sought additional copper that could be turned into coin.
These measures were slow and disruptive.
A bank that had promised to make money easier to use was finding that its customers wanted the metal behind their balances.
Palmstruch needed an alternative to carrying and redeeming copper plates.
His solution would become a landmark in European monetary history.
How Sweden Introduced Europe’s First Modern Banknotes
In 1661, Stockholms Banco began issuing a new form of paper money known as kreditivsedlar, or credit notes.
Paper instruments connected to money were not entirely new. Merchants and financial institutions had long used bills, payment orders, and deposit certificates.
China had developed paper currency centuries earlier, so Sweden was not the birthplace of paper money worldwide.
The importance of Palmstruch’s innovation lay in the particular design of the notes.
Unlike a receipt representing one specific deposit, a Stockholms Banco credit note was a more general promise from the bank to pay the stated amount in coin.
The notes could circulate between people as payment instruments. They used printed, standard denominations rather than requiring an individual deposit transaction to determine every amount.
The holder relied on the bank’s commitment to redeem the note when requested.
This made the notes among Europe’s earliest banknotes in the modern sense.
How Paper Created Purchasing Power
Consider a simplified example.
A merchant deposits copper coins at a bank and receives a claim that can be used to make payments. The paper represents money already placed in the institution.
Palmstruch’s system went further.
The bank could issue credit notes when granting a loan, creating a new payment instrument without first receiving an equal amount of newly deposited coins.
A borrower could spend the notes. The recipient could pass them to someone else. As long as people trusted Stockholms Banco, the notes could circulate without every holder immediately demanding copper.
This improved the economy’s ability to make payments and obtain credit.
But it also allowed the bank’s promises to grow faster than its available metallic reserves.
The value of the paper rested increasingly on confidence that future redemption would remain possible.
Why People Initially Welcomed the Notes
The advantages were considerable.
Paper was easier to transport than copper, simpler to store, and more practical for large transactions.
The notes also helped alleviate a shortage of convenient means of payment caused partly by changes to the coinage system.
At first, the innovation proved popular. Historical monetary research indicates that the notes were initially well accepted and could even command a small premium relative to coins.
This early success is important.
The public did not immediately reject paper as worthless. People discovered that a credible promise to pay could be more useful in daily commerce than carrying the metal itself.
For a time, the experiment appeared to offer precisely what Sweden needed.
The Credit Expansion That Undermined the Bank
As confidence in the notes grew, Stockholms Banco increased its lending.
The expansion reached well beyond ordinary merchants.
Members of the Swedish aristocracy became important borrowers, sometimes using estates, property, or other assets as security.
High-ranking political figures also participated.
In 1663, the Crown obtained substantial credit, while Chancellor Magnus Gabriel De la Gardie was another major borrower.
The bank’s lending activities were therefore connected to the financial requirements of politically powerful customers.
This created a difficult combination of commercial risk and government influence.
Loans supplied spending power to borrowers, while the bank issued more notes that could circulate throughout the economy.
But a larger quantity of paper claims did not automatically produce a larger stock of copper available for redemption.
When a Banknote Lost Its Face Value
By 1663, Stockholms Banco was experiencing increasing difficulties meeting its obligations.
People became less willing to accept its notes at their full stated value.
Suppose a note promised 100 units of money but a merchant would accept it as payment for goods worth only 94 units in coin.
The note was trading at a discount.
Such a discount reflected the market’s uncertainty about the bank’s ability to honour its promise.
Historical accounts describe Stockholms Banco notes falling approximately 6–10% below their face value during the crisis.
That was a serious loss of confidence, but it was not a total currency collapse or a case of modern-style hyperinflation.
A crucial distinction exists between the market depreciation of banknotes and the general rise in prices across an economy.
The two can influence each other, but they are not identical.
The bank’s growing volume of notes contributed to monetary pressure. At the same time, changes in copper and silver values, redemption difficulties, and the wider currency system affected confidence.
The crisis cannot be explained solely by counting how many notes Palmstruch issued.
How Large Was the Experiment?
A historical figure frequently associated with the bank is approximately 2.7 million daler copper money in notes, reported for late 1664.
That estimate comes through historical accounts rather than a complete surviving modern-style balance sheet.
Some original bank records were later damaged, complicating reconstruction of the exact amounts outstanding at different points.
Research by economic historians Rodney Edvinsson and Anders Ögren also suggests that the notes probably represented only a minority of Sweden’s total money supply.
The significance of the crisis was therefore not necessarily an extraordinary volume of paper relative to the entire economy.
It was the rapid growth of obligations within a bank operating under increasingly fragile conditions.
The Bank Run That Turned Into a Financial Crisis
The mechanics of the breakdown were simple but dangerous.
Stockholms Banco promised to redeem its notes in coin. Yet a substantial portion of its resources was tied to loans, while its ability to obtain the required metal was limited.
When customers began doubting the notes, they had an incentive to demand coins.
As redemptions increased, the available reserves became even more strained.
The problem intensified because the bank continued attempting to honour notes at their full nominal value.
If a person could buy a discounted note in the market and redeem it at the bank for its face value, the difference represented a potential profit.
This encouraged additional redemption attempts.
People seeking to protect their savings and those seeking to exploit the price difference could therefore place pressure on the same institution.
Every successful withdrawal reduced the liquid resources available to satisfy the next customer.
In September 1663, a bank official reported that cash on hand had fallen below 4,000 daler copper money, while a depositor was seeking to withdraw 10,000.
The figures illustrate how quickly a shortage of readily available funds could threaten the institution.
Why Calling In Loans Made the Crisis Worse
Stockholms Banco attempted to restore its finances by requiring borrowers to repay outstanding loans.
From the bank’s perspective, the measure made sense. Repayments could provide the money needed to settle claims.
From the borrowers’ perspective, however, it created another crisis.
People who had borrowed against land or other property could not necessarily produce cash immediately.
Forced repayments meant finding money elsewhere, selling assets, or seeking credit from private lenders.
As bank lending contracted, the supply of accessible credit deteriorated.
Businesses and property owners could find themselves under pressure even if their original activities had not been inherently unprofitable.
This is one reason banking crises can spread beyond the institutions where they begin.
A bank trying to survive may reduce lending at precisely the moment when its customers most need financial support.
Why Stockholms Banco Failed: More Than Excessive Printing
By late 1663, the Swedish authorities were investigating the bank’s difficulties.
In 1664, the government supported the withdrawal of its credit notes and the collection of outstanding loans.
Liquidation began, although the process extended over several years.
The experiment had failed as an operating banking model.
Yet historians disagree about how responsibility should be assigned.
The conventional explanation emphasises Palmstruch’s excessive note issuance, weak control over lending, and the bank’s inability to honour its obligations.
There is substantial evidence for those weaknesses.
The bank had used readily withdrawable deposits to finance loans. Its lending expanded rapidly, influential borrowers obtained large sums, and the quantity of redeemable claims increased without a corresponding expansion of immediately available metal.
However, that explanation is incomplete.
The Government’s Role in the Collapse
The Swedish authorities had helped create the monetary conditions that destabilised the bank.
Changes to the copper coinage encouraged withdrawals of older metal money. The government also exercised considerable influence over Stockholms Banco and benefited from its operations.
The subsequent decision to withdraw the notes and force loan repayments intensified the shortage of credit.
In a 2024 scholarly study, economic historian Anders Ögren places particular emphasis on the changes in exchange relationships between copper and silver, the difficulties of obtaining redemption metal, and the government’s decision to prohibit the notes rather than sustain the institution.
In this interpretation, Palmstruch became a convenient focus for blame in a crisis shaped partly by government policy.
This does not prove that the bank was sound or that unlimited further note issuance would have been safe.
It does demonstrate why the familiar story of one reckless banker printing too much money should not be treated as the only defensible explanation.
The collapse involved several interacting weaknesses: monetary instability, liquidity shortages, rapid lending growth, concentrated political borrowing, fragile confidence, and restrictive government intervention.
Johan Palmstruch’s Punishment and the Birth of the Riksbank
The consequences for Palmstruch were severe.
Following investigations into the bank’s affairs, he was prosecuted before the Svea Court of Appeal.
In 1668, he was found responsible for mismanagement and faced a sentence that could result in execution if he failed to compensate the bank’s established financial deficiencies.
He was ultimately reprieved but remained imprisoned until 1670.
Palmstruch died in 1671.
His personal downfall did not mean Sweden abandoned banking.
In 1668, the Riksdag of the Estates established Riksens Ständers Bank, the institution from which today’s Sveriges Riksbank developed.
It is generally recognised as the world’s oldest surviving central bank, although its original functions and governance differed significantly from those of a modern central bank.
The new institution was controlled by the estates represented in Sweden’s parliament rather than operating under Palmstruch’s earlier arrangements.
Its regulations initially prohibited the issuance of banknotes.
That restriction reflected the seriousness with which the previous failure was understood.
Paper money had demonstrated enormous practical value, but the authorities were unwilling to immediately repeat the same experiment.
Over time, Sweden returned to forms of paper-based payment, and the Riksbank developed into a central institution of the country’s monetary system.
The history was not a direct, uninterrupted progression from Palmstruch’s first notes to modern central banking.
It was a process of experimentation, failure, institutional change, and gradual adaptation.
What Sweden’s Copper Money Experiment Revealed
The most striking feature of the Stockholms Banco crisis is that both the innovation and the failure arose from legitimate economic problems.
Heavy copper coins were inconvenient. The currency system was complicated. Merchants needed reliable payment methods, and borrowers wanted access to credit.
Banknotes offered a powerful solution.
They allowed money to circulate without requiring every payment to involve the movement of metal.
But they also introduced a separation between the value promised by the bank and the physical resources immediately available to satisfy that promise.
That separation was useful as long as confidence held and demands for repayment remained manageable.
When confidence weakened, the same mechanism became dangerous.
The Swedish experience revealed three lasting issues in banking.
First, a bank can face a crisis even when it owns valuable assets if those assets cannot be converted into cash quickly enough.
Second, expanding credit creates economic opportunities but also obligations that must be managed.
Third, public policy and financial confidence are deeply connected. A government can strengthen a monetary system through credible institutions, but poorly managed changes can also destabilise it.
None of these problems disappeared with copper plate money.
They reappeared in later banking panics, debates over banknote issuance, and modern financial crises.
Sweden did not invent the world’s first paper currency, nor did one oversized copper coin single-handedly create central banking.
Its contribution was more specific and historically significant.
In trying to escape the limitations of heavy metallic money, Stockholms Banco helped demonstrate how transferable bank promises could function as currency—and how quickly those promises could become vulnerable when confidence, liquidity, and monetary policy moved against them.
The copper plates eventually lost their place in everyday commerce.
The central question raised by Sweden’s experiment survived: when money depends on a promise rather than the immediate possession of metal, what makes that promise trustworthy?
Sources & Further Reading
Sveriges Riksbank. “The World’s Largest Coin.” Historical Timeline, event dated 1644. Official central bank history.
Sveriges Riksbank. “Sweden’s First Bank.” Historical Timeline, event dated 1656. Official central bank history.
Sveriges Riksbank. “First Banknotes in Europe.” Historical Timeline, event dated 1661. Official central bank history.
Sveriges Riksbank. “Stockholms Banco.” Historical account in the Riksbank’s published institutional history. Detailed discussion of Palmstruch, copper coinage, bank lending, note issuance, liquidation, and prosecution.
Rodney Edvinsson. “The Multiple Currencies of Sweden–Finland 1534–1803.” In Historical Monetary and Financial Statistics for Sweden, Volume I: Exchange Rates, Prices, and Wages, 1277–2008. Sveriges Riksbank / Ekerlids Förlag, 2010.
https://www.riksbank.se/globalassets/media/forskning/monetar-statistik/volym1/4.pdf
Rodney Edvinsson and Anders Ögren. “Swedish Money Supply, 1620–2012.” In Historical Monetary and Financial Statistics for Sweden, Volume II, pp. 293–338. Sveriges Riksbank / Ekerlids Förlag, 2014.
Anders Ögren. “Johan Palmstrüch, a Copper Money Doctor: Stockholm Banco and the Emergence of Banknotes in Seventeenth Century Sweden.” In Money Doctors Around the Globe: A Historical Perspective, pp. 33–53. Springer, 2024.
https://link.springer.com/chapter/10.1007/978-981-97-0134-6_3
Sveriges Riksbank. “Sveriges Riksbank Is Founded.” Historical Timeline, event dated 1668. Official history of Riksens Ständers Bank and the creation of Sweden’s parliamentary bank.
