|
Article Excerpt
The Norwegian payment system processes more than three million payment transactions every day. On some days the number of transactions can be far higher. The transactions are cleared and settled in the Norwegian payment system. In the clearing process, a number of transactions are offset against each other. In the settlement process, the results of the clearing are entered in banks' accounts in a settlement bank. Norges Bank is the settlement bank for all the large Norwegian banks. The total value of the transactions is approximately NOK 300 billion on an average day. This means that in less than one week an amount equivalent to mainland GDP passes through the Norwegian payment system.
A clearing and settlement system that resembles the present system did not exist in Norway until 82 years after the establishment of Norges Bank. Norges Bank was assigned a key role as settlement bank and this role is firmly established today (1). However, the current system is very different from Norges Bank's activities in this field just after it was established in 1816. Norges Bank's responsibility then was to provide a means of payment in Norway, i.e. notes and coins, in which the public had confidence. At an early stage, however, the Bank offered to transfer cash between the Bank's branches.
This article primarily describes some important events in the Norwegian clearing and settlement system in the period from 1816 up to World War II.
Norges Bank is established
In the early 19th century, transactions were normally settled directly between parties. They could take the form of barter, but precious metals and notes and coins were also used as means of settlement. When large amounts were involved, a "bankier" (2) might act as intermediary, particularly in connection with exports and imports. Clearing and settlement as we define it today was not relevant, partly because it was practical to settle accounts directly and partly because there was no banking system in Norway for clearing and settling reciprocal receivables and claims. To the extent that banks were involved, these were located abroad, usually in Copenhagen, Hamburg and London.
In the 1700s, a number of attempts were made to establish a joint Danish-Norwegian bank of issue (3). One important reason why no lasting success was achieved was that banks of issue tended to be used to finance the Treasury. If the issue of notes and coins was not commensurate with the underlying values, confidence in the bank and its money diminished. Hence the value of the money was reduced and the bank had to terminate its operations.
After the dissolution of the union with Denmark in 1814, there were soon calls for a separate Norwegian banking system. This was partly based on real needs on the part of the business sector, but a separate banking system also had a symbolic value in nation-building. The first step towards a Norwegian banking system was the establishment of Norges Bank in 1816. (4) The bank was established as a private joint-stock bank. Capital was procured through mandatory deposits (5), the so-called silver tax. The collection of mandatory deposits was difficult and met considerable resistance. In the History of Norges Bank, Part I Nicolai Rygg (6) writes:
"Opposition was greatest in inland Eastern Norway. In September 1818 a group of farmers, many of whom had come from Hallingdal and Valdres, marched on Kristiania. The authorities grew nervous, and the march was stopped at Baerums Verk, just north of Oslo, although the aim had been to submit a complaint to the Government and the Storting in the capital. Although a number were arrested and some put in prison, the sentences were reduced by King Karl Johan. This was the last open protest against the compulsory deposits."
The head office was not initially located in Kristiania (then the name of Norway's capital city; the name of Oslo was not restored until 1925), as stipulated by the Act in the event that the capital was procured through voluntary subscription, but in Trondheim instead. One of the arguments put forward was that with mandatory deposits the Bank would not have the same authority to maintain independent status and a long-term approach as it would if it was established through voluntary deposits. It was therefore concluded that a distance to the Storting and the Government would be advantageous for a "mandatory bank". Moreover, there were already branch offices in the major towns of Bergen, Kristiania and Kristiansand in 1816.
The Bank had three main responsibilities: It was to have the sole right to issue notes; it was to carry out banking services for the government, and it was to provide general banking services and operate credit and deposit facilities.
Instruments that were used in the first 75 years (7)
Lending and discounting of bills of exchange
The Bank commenced its lending activities in 1818. On 28 September that year, Norges Bank's Board of Directors announced that the silver fund was large enough to allow the Bank to offer loans and to discount bills of exchange and negotiable debt instruments.
Norges Bank's lending policy was initially somewhat unusual for a bank of issue. Its responsibility was to be to provide short-term loans, preferably to the business sector. Instead, the Bank largely provided long-term loans secured on real property. Although these mortgage loans had a maturity of 6 months, which was the stipulated maximum maturity, in practice they were constantly renewed. As late as 1830, loans secured on real property accounted for 90 per cent of total lending.
At the time of its founding, Norges Bank was the only bank in Norway, but in the 1820s some savings banks were established. They were small, and primarily covered local needs for operating capital and funding for agriculture and craft enterprises. When manufacturing became an industry in Norway, they were not capable of financing increased trade with other countries and increased production. Short-term credit was therefore in very short supply.
In order to meet some of this need, Norges Bank established Den anekterte laaneindraetning in 1818. With this loan facility it was possible to deposit a sum of silver and to receive twice the amount in banknotes. At the most, 735 000 speciedaler was on loan at any one time under this arrangement, which terminated in 1835. It had already been partly replaced in 1828 by a borrowing and discount facility, whereby 100 000 speciedaler in silver coins and 150 000 speciedaler in banknotes the debitor,...
|
