Knut Wicksell: Selected Essays in Economics - Vol. 2

By Knut Wicksell; Bo Sandelin | Go to book overview

20

THE RATE OF EXCHANGE AND THE BANK RATE

The gratifying decline that has recently {1914-15} occurred in our rates of exchange on London, Amsterdam, Paris and New York 1 once again prompts the question whether our Scandinavian central banks might not now be ready to go all the way, to open their counters to the redemption of notes, thereby at the same time wiping out the remaining 2-3 per cent gap in the exchange rate against countries that have always had the sense to keep their currencies up to par. By doing so, we should put a definitive stop to a paper money regime that is unworthy of a modern monetary system such as our own, even though its legality can no longer be contested now that the constitutional question has been brought to a successful close.

But unfortunately our own banking authorities still hold out no hope in this respect. In the report despatched to His Majesty by the Governing Board of the Riksbank on 9 April this year {1915}, it is asserted that the ‘political situation, which is uncertain in both political and financial respects, appears to preclude the possibility of resuming the redemption of banknotes in the immediate future’. The Swedish Riksbank, they add, has ‘particular reason to act with caution in this regard’, in that since the very beginning of the {First World} war our circulation of notes has been about 60 million crowns higher than ‘can be considered normal’. In the opinion of the Governing Board of the Riksbank, the surplus notes are still being hidden away (hoarded) by the general public, and if convertibility is resumed before these notes have returned to the Riksbank, ‘it is to be feared that to the extent that the notes have been used for the purposes of hoarding, they would be exchanged for gold, which in turn would be stashed away’ etc.

It would amuse me to know whether, at this present moment, the members of the Board are acquainted with a single real case of this alleged ‘hoarding’, which is so much at odds with our economic habits. After all, there is a circumstance that is perfectly capable of explaining the augmented need for notes without us being compelled to resort to this hypothesis, namely, the drastically raised price of all or most commodities. Other things being

Originally published as ‘Växelkurs och bankränta’, Ekonomisk Tidskrift, 1915.

-60-

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