# Digression Concerning Banks of Deposit, Particularly Concerning That of Amsterdam explained — The Wealth of Nations

> Chapter companion for The Wealth of Nations by Adam Smith.

## What happens

This chapter examines the establishment and operation of banks of deposit, focusing on the Bank of Amsterdam. It explains how small states with mixed currencies used such banks to stabilize exchange rates by requiring foreign bills to be paid in bank money, which was tied to a fixed standard. The chapter details the mechanics of deposits, transfers, agio, and receipts for bullion, as well as the bank's revenue sources and its original purpose of public utility rather than profit.

## Themes in this chapter

### Role of Government

The state established and guaranteed the bank to remedy the inconvenience of a disadvantageous exchange, showing government intervention in monetary affairs.

### Wealth and Money

The chapter discusses the intrinsic value of bank money versus common currency, the agio, and the bank's revenue from deposits and transfers.

## Character check-ins

### The Teacher

The narrator explains the principles and history of banks of deposit, particularly the Bank of Amsterdam.

## Key lines

> In order to remedy the inconvenience to which this disadvantageous exchange must have subjected their merchants, such small states, when they began to attend to the interest of trade, have frequently enacted, that foreign bills of exchange of a certain value should be paid, not in common currency, but by an order upon, or by a transfer in the books of a certain bank, established upon the credit, and under the protection of the state; this bank being always obliged to pay, in good and true money, exactly according to the standard of the state.

To fix the problem of unfavorable exchange rates, small states passed laws requiring large foreign bills to be paid through a state-backed bank that always used standard-value money, rather than in everyday currency.

_Explains the rationale for establishing banks of deposit._

> The money of such banks being better than the common currency of the country, necessarily bore an agio, which was greater or smaller, according as the currency was supposed to be more or less degraded below the standard of the state.

Because bank money was of higher quality than regular currency, it traded at a premium that varied with how much the common currency had fallen below the official standard.

_Describes the agio as a premium for superior bank money._

> Public utility, however, and not revenue, was the original object of this institution. Its object was to relieve the merchants from the inconvenience of a disadvantageous exchange. The revenue which has arisen from it was unforeseen, and may be considered as accidental.

The bank was originally created for the public good—to help merchants with bad exchange rates—not to make money; its profits were an unexpected byproduct.

_Highlights the primary purpose of the Bank of Amsterdam as public utility._

## Links

- HTML: https://www.betterreads.online/discover/the_wealth_of_nations_se/chapters/digression-concerning-banks-of-deposit-particularly-concerning-that-of-amsterdam
- Book: https://www.betterreads.online/discover/the_wealth_of_nations_se
- All chapters: https://www.betterreads.online/discover/the_wealth_of_nations_se/chapters