Money and trust: lessons from the 1620s for money in the digital age

BIS Working Papers  |  No 698  | 
06 February 2018



We look to history for lessons on the nature of money and the role of central banks in building trust in the use of money in society. The issue of trust has again come to the fore in debates on the durability of cryptocurrencies such as Bitcoin, and how far private money can supplant central bank money as a medium of exchange.


Our study documents the economic crisis in Europe caused by uncontrolled currency debasement during the Thirty Years War (1618-48), and how the establishment of deposit banks rebuilt trust in monetary exchange. Our work builds on this historical experience by developing a model of how the institutional backing of deposit banks restored order. Establishing common knowledge of the value of money enabled trust. This brought about greater confidence in transactions and broader participation in economic activity, sparking a virtuous cycle.


Our findings suggest that the deposit banks established in the 1600s have a claim to being the precursors of modern central banks, even though they were not designed to lend. Deposit banks were payment banks where deposits were fully backed by coins. However, they provided a notional currency - bank money - and a platform to settle financial transactions that rebuilt trust in monetary exchange. In the process, bank money established common knowledge in the value of a transaction. Studying past currency debasements is especially topical given the recent proliferation of cryptocurrencies and the practice of "forking", whereby new variants are created. These lessons provide background to the lecture by BIS General Manager Agustín Carstens on Money in the digital age: what role for central banks? Similarities between early deposit banks and modern central banks show how a solid institutional framework and public trust can underpin trust and ensure well functioning currencies.



Money is a social convention where one party accepts it as payment in the expectation that others will do so too. Over the ages, various forms of private money have come and gone, giving way to central bank money. The reasons for the resilience of central bank money are of particular interest given current debates about cryptocurrencies and how far they will supplant central bank money. We draw lessons from the role of public deposit banks in the 1600s, which quelled the hyper-in‡flation in Europe during the Thirty Years War (1618-1648). As the precursors of modern central banks, public deposit banks established trust in monetary exchange by making the value of money common knowledge.

JEL classification: E42, E58, N13

Keywords: Gresham's Law; debasement; common knowledge; central banks