Replacing bank money with base money : lessons for CBDCs from the ending of private banknotes in Sweden

A number of central banks have started to investigate the possibility of issuing so-called Central Bank Digital Currencies (CBDCs). The aim may be to compete with crypto-currencies of different kinds but also to replace digital commercial bank money with central bank issued digital money, i.e. replacing bank money with central bank-issued base money. In this paper we study a similar experiment when the Swedish central bank, the Riksbank, in 1903 replaced private banknotes with their own notes. The result of this policy was a massive increase in commercial bank credit dueto the increase in base money, spurring the ongoing boom even further. A boom that worsened the 1907 crisis. The result is thus questioning the notion that increased monetary issuance by a monetary authority to replace other financial assets as private money or cryptoassets should lead to increased financial stability-as, in fact, it led to the opposite.