About Oesterreichische Nationalbank (National Bank of the Republic of Austria)
The ruling Habsburg dynasty struggled with the issue of paper money for nearly 50 years before founding a central bank in Austria: Banknotes – known as “Bancozettel” at the time – were first issued in 1762 by an institution that enjoyed the confidence of the business community precisely because it was not government-controlled: the Municipal Bank of Vienna (Wiener Stadtbank), originally founded in 1705.
During the Napoleonic wars, government stepped in, however, and took direct control of banknote issuance, causing the supply of banknotes in circulation to increase sharply a number of times. Thus, the total value of “Bancozettel” in circulation swelled from 44 million florins (“Gulden”) in 1796 to 942 million florins by 1810. In business transactions, banknotes increasingly replaced silver and copper coins, confirming Gresham’s Law, according to which “bad money” drives out “good money.” When the government decreed that paper money had to be accepted as legal tender in private commercial transactions, the market responded by trading banknotes at rapidly rising discounts to their face value. To give an example: While “Bancozettel” with a face value of 100 florins were redeemed for only 92 florins in silver coins in 1799, inflation had reduced the value of “Bancozettel” to a mere 15% of the face value by December 1810. Soldiers on the battlefield even rebelled against the obligation to accept “Bancozettel” as legal tender. When the Habsburgs eventually devalued the banknotes at a ratio of 5 to 1, the business community considered this move to be tantamount to sovereign default. Despite strong assurances of the government to refrain from excessive issuance of banknotes from then on, the currency, now labeled “Viennese currency,” continued to depreciate rapidly.…..Continue reading about here.
Website: https://www.oenb.at/
