One money – two values: Sweden's experience of parallel banknotes 1789–1803, and its relevance for today's CBDC debate

From 1789 to 1803, Sweden experienced a unique monetary situation. The government issued banknotes through two institutions, Riksens Ständers Bank (the Bank of the Estates of the Realm, later the Riksbank) and Riksgäldskontoret (the National Debt Office); the notes were in the same currency (riksdaler); they were occasionally in the same denominations; and they were both legal tender. Yet their values diverged, eventually by as much as 50 per cent. Both contemporary and subsequent writers have generally argued that this divergence occurred and was later driven by mass issuance of the Debt Office notes, and/or by the fact that these notes, in contrast to notes issued by the Bank, were not convertible into specie. These explanations are not borne out by the data. Instead, the best fit for the changes in the exchange rate between the two banknote types seems to be changes in the size of the outstanding government debt.