Surge, retraction and prices: the performance of fiat coins in Sweden, c. 1715–1720

Abstract

From 1716 to 1718, Sweden experienced a shock of liquidity when the absolutist regime of Charles XII issued large amounts of fiat coins (mynttecken) in order to finance the Great Northern War. After the death of the king in November 1718, the new parliamentary regime decided to partially default on the coins. In international literature, this episode is largely unknown, and in Swedish historiography, scholars have often claimed that the country's currency collapsed in hyperinflation. We assess the performance of the new coins by studying how prices of commodities in various geographic locations developed. We also study bookkeeping practices in order to see how accountants treated the new coins. Our results show that there was a complex relationship between prices and liquidity. Prices of products in high demand by the military increased more than other prices. Accountants did not treat mynttecken and other currencies differently in 1718. It was only after the death of the king that accountants started to differentiate between different types of coins. The value of the fiat coins was linked to the actions and the legitimacy of the royal regime, which is in line with the State theory of money.