Danmarks Nationalbank’s history begins with its establishment in 1818. Danmarks Nationalbank’s establishment was preceded by a chaotic period of war, state bankruptcy and a chaotic monetary system.
Denmark had sided with France in the Napoleonic Wars after the British bombardment of Copenhagen in 1807. This brought Denmark’s foreign trade almost to a halt, and the state coffers were rapidly depleted.
The King financed the considerable war expenditure by keeping the printing press running. Back then, the King and the King alone decided how many banknotes would be printed.
As a result, inflation skyrocketed. In 1813 alone, prices rose by more than 300 per cent, and trust in the financial system eroded. No one knew if their money would be worth anything the next day.
Even the government lost confidence in the monetary system and required payment of certain taxes in grain rather than banknotes.
The Danish monetary system had collapsed. An extensive currency reform was needed. As part of this reform, Danmarks Nationalbank was established in 1818 and was granted a monopoly on issuing banknotes in Denmark. Danmarks Nationalbank’s independence of the state was ensured, so government budget deficits will never again be financed by printing more money.
Danmarks Nationalbank spent the first decades of its existence restoring people’s trust in the monetary system. It succeeded, but this process illustrates how quickly credibility can be lost and how long it takes to restore it.
Trust is key to a well-functioning monetary system
Danmarks Nationalbank’s objective is to maintain a safe and secure currency system. This objective was formulated when Danmarks Nationalbank was established in 1818 and it has remained unchanged ever since. But the means to this end have changed, and tasks are still evolving.
When Danmarks Nationalbank was established in 1818, it was imperative to restore public trust in banknotes; today, a safe and secure currency system is equally as much about ensuring trust in the systems that enable us to transfer money between us on a daily basis.
Photo: Steen Jespersen/Ritzau Scanpix
Photo: Philip Davali/Ritzau Scanpix