This chapter again uses data from the Bank’s ledgers, cash books, and other records to examine its policy decisions over much of the eighteenth century (1711—1791). Examination of these data indicates that the Bank’s accounting was highly focused on accurate tabulation of the total stock of Bank money. It is argued that this money stock had two functional components, de facto splitting the bank into two institutions: a passive bank whose money originated from customers’ deposits of coins under receipt, and an active bank whose money originated from open market purchases of metallic assets and credit operations. The data show that from 1727 forward, the active portion of the Bank’s money was systematically adjusted to balance out (sterilize) fluctuations in the passive portion. The chapter also discusses two crisis episodes when this policy approach broke down: (1) a financial panic in the autumn of 1763 that required a liberalization of the receipt system, leading to unbalanced expansion of the passive bank; (2) excessive lending to the Dutch East India Company during the Fourth Anglo-Dutch War (1780—1784), leading to a contraction of the passive portion and overexpansion of the active. The effects of the latter crisis were sufficiently severe that the Bank never fully recovered.

This chapter offers an example of the role of the Bank in European state finance. The kingdom of Prussia made heavy use of the Bank during the Seven Years War (1756—1763). Public finance in Prussia during this period was primitive, lacking basic features such as a bond market or central bank. Under heavy financial pressure, Prussian King Frederick II chose to finance much of the war through the production of debased coinage. The task of minting debased coins was outsourced to private contractors (“mint entrepreneurs”), who purchased much of the necessary silver in Amsterdam, making use of credit which was abundant in the Amsterdam market. Details of these transactions are revealed in the Bank’s ledgers. Frederick also relied on gold subsidies from Great Britain, which were paid via Amsterdam and can also be matched to Bank records. Finally, at the end of the war, Frederick called upon his entrepreneurs to engineer a reverse debasement (reinforcement). This activity once again relied heavily on Dutch resources, including remote smelting furnaces, Amsterdam credit, and Bank money. Traces of the entrepreneurs’ activity can again be seen in the Bank’s records.