View source for Finance:Danish state bankruptcy of 1813

{{short description|Economic crisis after the Napoleonic wars}}
{{Infobox event
|title=Danish State Bankruptcy of 1813
|date=5 January 1813|type=State Bankruptcy
|cause=
*Napoleonic Wars-induced great wartime expenditure  
*Loyalty to Napoleon and France
*British blockade on Norwegian sea lanes
*Overissue of banknotes
*Devaluation of silver
|outcome=
*Sharp rise in unemployment
*Collapse of the financial industry
*Collapse of the [[Social:Trade|trade industry]]
*Collapse of the price of currency (silver)
*Destabilization and collapse of Denmark as a European power
*Increase in [[Finance:Government debt|government debt]]
*Major downturn in [[Finance:Consumerism|consumerism]]
*End of the Danish-Norwegian union. 
|image=Christoph Wilhelm Wohlien - Portræt af Frederik VI.jpg
|caption=Frederik VI, King of Denmark, 1809
|coordinates={{coord|56.2639|N|9.5018|E|type:event_region:IN|display=inline,title}}
}}

The '''Danish state bankruptcy of 1813''' was a domestic economic crisis that began in January 1813 and had consequential effects until 1818.<ref name=":2">{{Cite book|last1=Talvio |first1=Tuukka |last2=von Heijne |first2=Cecilia |last3=Märcher |first3=Michael|title=Monetary boundaries in transition: a North European economic history and the Finnish War 1808–1809|date=2010|publisher=The Museum of National Antiquities|isbn=978-91-89176-41-6|oclc=761549810}}</ref> As Denmark struggled with the financial burden that the Napoleonic wars had on the economy, the devaluation of the currency had negative effects on merchants, citizens and businesses alike.<ref name=":3">{{Cite book|last1=Glenthøj|first1=Rasmus|last2=Ottosen|first2=Morten Nordhagen|date=2014|title=Experiences of War and Nationality in Denmark and Norway, 1807–1815|doi=10.1057/9781137313898|isbn=978-1-349-33786-6}}</ref>

As Denmark allied with France in 1807 in the aftermath of British attacks on Copenhagen, it incurred costs of rearmament as machinery, equipment and supplies were required for wartime efforts.<ref>{{Cite journal|last=Feldbæk|first=Ole|date=2001|title=Denmark in the Napoleonic Wars: A Foreign Policy Survey|journal=Scandinavian Journal of History|language=en|volume=26|issue=2|pages=89–101|doi=10.1080/034687501750211127|issn=0346-8755}}</ref> As a result, when the economic burden placed on the state began to take its toll the collapse of the currency became imminent.<ref name=":4">{{Cite journal|last=Abildgren|first=Kim|date=2010|title=Consumer prices in Denmark 1502–2007|journal=Scandinavian Economic History Review|language=en|volume=58|issue=1|pages=2–24|doi=10.1080/03585520903298184|issn=0358-5522}}</ref> The loyalty shown to Napoleon and France by Frederik VI and Denmark was eventually cause for great loss. The Treaty of Kiel, signed in January 1814, saw Denmark lose considerable power in Europe. Ceding claim to the Kingdom of Norway to Sweden put even further pressure on export and import trading as well as an already weak economy.<ref>{{Cite book|last1=Glenthøj|first1=Rasmus|title=Experiences of War and Nationality in Denmark and Norway, 1807–1815|last2=Ottosen|first2=Morten Nordhagen|date=2014|publisher=Palgrave Macmillan UK|isbn=978-1-349-33786-6|location=London|language=en|doi=10.1057/9781137313898}}</ref>

Due to consequences of the Napoleonic wars, Denmark was forced to declare bankruptcy on 5 January 1813.<ref name=":0">{{Cite web|last=Abildgren|first=K|date=2014|title=Danmarks Nationalbank 1818-2018|url=https://www.nationalbanken.dk/en/publications/anniversary%20publications/Documents/Nationalbanken%201818-2018_uk.pdf}}</ref> The Danish government through monetary and economic policy had two main objectives; stabilise the economy and create a unified state-wide monetary system.<ref name=":1">{{Cite journal|last=Marcher|first=M|date=2012-02-24|title=Economic Policy Reforms 2012 (Summary in Danish)|journal=Economic Policy Reforms|doi=10.1787/growth-2012-sum-da|isbn=9789264168251|issn=1813-2723}}</ref> The ''Rigsbank'' was the first governmental institution tasked with stabilising the economy by re-structuring the currency. In 1818, the ''Nationalbank,'' a privately operated institution was formed to extend credit benefits from citizens to businesses, and aid the revival of the Danish economy.<ref name=":0" /> The objective was to reinstate silver as the overarching currency in the Danish economy and restore confidence in a central banking system.<ref name=":1" />

== History ==

=== Napoleonic Wars ===

Denmark, had remained adjacent to early preceding's of the Napoleonic Wars. Russia and France both had vested interest in Denmark and its naval fleet and its use of Norwegian-Danish trade routes.<ref name=":5">{{Cite journal|last=Chalcraft|first=Tony|date=2017-03-20|title=Historical Dictionary of Denmark (3rd edition)RR 2017/089 Historical Dictionary of Denmark (3rd edition) Alastair H. Thomas Rowman & Littlefield Lanham, MD and London 2016 Liv + 649 pp. {{text|ISBN}} 978 1 4422 6464 9 (print); {{text|ISBN}} 978 1 4422 6465 6 (e-book) £95 $145 Historical Dictionaries of Europe|journal=Reference Reviews|volume=31|issue=3|pages=34–35|doi=10.1108/rr-02-2017-0028|issn=0950-4125}}</ref> The British understood they would need to lay siege to the fleet if they were to gain control over vital sea lanes.<ref>{{Cite journal|last=Kulsrud|first=Carl J.|date=1938|title=The Seizure of the Danish Fleet, 1807: The Background|journal=The American Journal of International Law|volume=32|issue=2|pages=280–311|doi=10.2307/2190974|jstor=2190974}}</ref> In September 1807, the British empire bombed Copenhagen, the capital of Denmark, in order to capture or destroy the Dano-Norwegian fleet. The bombardment on the Danish capital, allowed the British to take vital sea lanes in the Baltic and North Sea.<ref name=":5" /> Frederik VI and his monarchy viewed the ruling of Norway as essential to its European power.<ref name=":6">{{Cite journal|last=Bregnsbo|first=Michael|date=2014-05-27|title=The motives behind the foreign political decisions of Frederick VI during the Napoleonic Wars|journal=Scandinavian Journal of History|language=en|volume=39|issue=3|pages=335–352|doi=10.1080/03468755.2014.907197|issn=0346-8755}}</ref> A lack of stability in the Norwegian grain supply as well as the chance for French invasion drove the strategy for an alliance with Napoleon.<ref name=":6" />

Denmark had little to offer France as the naval strength had been eliminated. The cost of rearmament and war time preparations took a toll on the Danish economy.<ref name=":4" /> Adding to the loss in the attack on Copenhagen in 1807, Frederik VI remained loyal to Napoleon and France, even as Sweden and Russia switched alliances to Great Britain.<ref>{{Cite journal|last=Cronin|first=Kieran|date=2010-01-19|title=Historical Dictionary of Norway201048Jan Sjåvik. Historical Dictionary of Norway. Lanham, MD and Plymouth: Scarecrow Press 2008. xxvii+269 pp., {{text|ISBN}}: 978 0 8108 5753 7 £53/$80 Historical Dictionaries of Europe, No. 62|journal=Reference Reviews|volume=24|issue=1|pages=63–64|doi=10.1108/09504121011012201|issn=0950-4125}}</ref> When France attacked Russia in 1812, both nations effectively allied with Great Britain, leaving their alliance with France behind. After suffering a prolonged period of defeat between 1810–1812, Frederik VI, the king of Denmark, was increasingly concerned about losing claims to Norway and the land owned in the North of Germany.<ref name=":3" />

=== Bankruptcy declared ===
On January 5, 1813, Denmark declared bankruptcy and a new state bank, the ''Rigsbank,'' was created to bring the economy out of hardship.<ref name=":1" /> The main agenda for the ''Rigsbank'' was to re-organise and stabilise the state's monetary system.<ref name=":1" /> When Denmark allied with France in 1807, the Fontainebleua Treaty was signed between France and Denmark. Denmark was promised favourable loans and subsidies that would cover financial costs of wartime readying.<ref name=":3" /> However, the terms of the treaty were not upheld and it was Denmark who covered the cost of the French push in Denmark in 1808.<ref name=":3" />  Adding to this, the promise of troops and equipment to Napoleon throughout the war, only furthered the costs Denmark were to bear.

=== Treaty of Kiel, 1814 ===

The Treaty of Kiel was a 14 article document signed in January 1814 between Denmark, Norway, Sweden and the United Kingdom, ending the Napoleonic wars.<ref>{{Cite journal|last=Weibull|first=Jörgen|date=1990|title=The Treaty of Kiel and its political and military background|journal=Scandinavian Journal of History|language=en|volume=15|issue=3–4|pages=291–301|doi=10.1080/03468759008579206|issn=0346-8755}}</ref> Sweden and the United Kingdom, under the sixth coalition were united in battle against Denmark and Norway who was allied with France.<ref name=":6" /> Denmark, due to its defeat in the war and the ensuing Treaty of Kiel, were obligated to cede Heligoland to the United Kingdom.<ref>{{Cite journal|last=Berg|first=Roald|date=2014-05-27|title=Denmark, Norway and Sweden in 1814: a geopolitical and contemporary perspective|journal=Scandinavian Journal of History|language=en|volume=39|issue=3|pages=265–286|doi=10.1080/03468755.2013.876929|issn=0346-8755}}</ref>King Frederik VI Denmark's rule of the Kingdom of Norway was relinquished to King Charles XIII of Sweden, a great disappointment to King Frederik VI.<ref>{{Cite journal|last=Redvaldsen|first=David|date=2014-07-03|title=Great Britain and the Norwegian constitution of 1814|journal=Parliaments, Estates and Representation|language=en|volume=34|issue=2|pages=182–202|doi=10.1080/02606755.2014.946828|issn=0260-6755|doi-access=free}}</ref>

Under ''Article III,'' Denmark were able to get ruling geographical claims on Greenland, Iceland and the Faroe Islands.<ref>{{Cite journal|last=Jensen|first=Mette Frisk|date=2017-12-21|title=Statebuilding, Establishing Rule of Law and Fighting Corruption in Denmark, 1660–1900|journal=Oxford Scholarship Online|doi=10.1093/oso/9780198809975.003.0014}}</ref> The culmination of significant land claim losses, the dissolution of the union with Norway, and the humiliation of defeat to the United Kingdom and its allies, had severe economic and social impacts on Denmark.<ref name=":1" />

== Causes of bankruptcy ==

=== Internal ===
The cost of wartime efforts had a major effect on the Danish economy. In an effort to subsidise the cost of rearmament, the Danish government issued a substantial amount of banknotes.<ref name=":6" /> As it stood, the national currency was silver and as a result of excessive issue of banknotes, the former value of silver was lost. The Danish government could not ensure loans from the population were paid, leading to an excessive printing of more money to account for wartime expenditure.<ref name=":4" /> Denmark's efforts to prepare for the war economically led to the devaluation of the currency.
[[File:Nicholas Pocock - The Battle of Copenhagen, 2 April 1801.jpg|thumb|''The Battle of Copenhagen,'' as painted by Nicholas Pocock.|alt=]]
The indecisiveness of Frederik VI, the king of Denmark, to not act in the interests of Denmark by remaining loyal to Napoleon and France in 1812, was cause for significant loss of power.<ref name=":6" /> As France and her allies were defeated, Denmark surrendered Norway to Sweden and lost claim to significant land claims in North Germany<ref name=":3" /> As a result, financial pressure on the currency was increased and not only had great effects on the economy, but led to poverty and a reduction in the quality of life for citizens.<ref>{{Cite web|title=The Peace Treaty of Kiel|url=http://www.kongehuset.no/artikkel.html?tid=30100&sek=27320|access-date=2020-06-02|website=www.kongehuset.no|language=no}}</ref>

=== External ===
Britain's bombardment of Copenhagen in September 1807 ended the neutrality of Denmark in the Napoleon war. Denmark were forced to ally with France, with little military power after losing their naval fleet. The trade embargo on Denmark by Britain coupled with the destruction of the Danish naval fleet saw trade between Norway, Denmark's overseas colony essentially cease.<ref>{{Cite web|title=History in Denmark {{!}} Frommer's|url=https://www.frommers.com/destinations/denmark/in-depth/history|access-date=2020-06-02|website=www.frommers.com}}</ref>

The alliance between Denmark and France was a key reason for [[History:Union between Sweden and Norway|the loss of Norway to Sweden]] in the Treaty of Kiel.<ref name=":5" /> Norway was aligned with the economic motives of Great Britain and the loss of trade between Denmark and Norway due to the blockade, saw trade between Norway and Great Britain begin. The decision to join the war along with the effects of the trade embargo meant significant financial burden would be placed on the state to ready for battle as the control of the vital sea lanes was lost.<ref name=":7">{{Cite journal|last=Østergård|first=Uffe|date=2004|title=The Danish Path to Modernity|journal=Thesis Eleven|language=en|volume=77|issue=1|pages=25–43|doi=10.1177/0725513604042658|issn=0725-5136}}</ref>

== Effects ==

=== Economic ===
Frederik VI's decision to halt all trade with Britain following on from the bombardment of Copenhagen, negatively affected the import and export market. The Danish timber market was dependent on trade to other European nations and reported a drop of 99% from 1806 to 1808.<ref>{{Cite journal|last=Ruppenthal|first=Roland|date=1943|title=Denmark and the Continental System|journal=The Journal of Modern History|volume=15|issue=1|pages=7–23|doi=10.1086/236690|jstor=1871504|issn=0022-2801}}</ref> Throughout the period from 1808–1813, inflation was rising and in 1813 alone prices rose by some 300 per cent.<ref name=":4" /> The central government lost faith in the Danish currency, evidenced by certain taxes being payable by kind (grain) instead of banknotes.<ref name=":4" /> The Treaty of Kiel and the loss of geographic claim saw Denmark encounter problems with the circulation of banknotes. As Denmark's total population reduced, this was not met with a reduction in the stock of circulating banknotes, only increasing inflationary effects on the currency.<ref name=":4" /> As a result of the war, Denmark was forced to suspend foreign debt and interest payments until 1815.<ref>{{Cite web|last=Khan|first=Mehreen|date=2017-03-20|title=Denmark rids itself of foreign debt for first time in 183 years|url=https://www.ft.com/content/5acbe3b5-b606-354e-a0de-b665a0420db9|access-date=2020-06-02|website=www.ft.com|language=en-GB}}</ref>
[[File:War of the Sixth Coalition 1813.svg|alt=|thumb|War of the Sixth Coalition, displaying the occupied areas in 1813.  Note that as the war progressed, more and more allies of Napoleonic France switched sides and joined the Sixth Coalition. '''BLUE''': French Empire and allies (Kingdom of Italy, Naples, Denmark, Switzerland and French-occupied Spain) '''RED''': Sixth Coalition and allies (Great Britain, Austria (since 12 August), Russia, Prussia (since 17 March), Sweden (since 3 March).]]

=== Political ===
Denmark, before France was defeated by Russia in 1812, were offered permission to side with Britain and its allied forces.<ref>{{Cite journal|last=Grab|first=Alexander|date=2010-03-31|title=Review: Charles Esdaile, Napoleon's Wars. An International History, 1803—1815, Penguin: London, 2008; 656 pp., 8 maps, 27 illus.; 9780141014203, £14.99 (pbk)|journal=European History Quarterly|volume=40|issue=2|pages=322–323|doi=10.1177/02656914100400020618|issn=0265-6914}}</ref> This would have reduced the burden that was placed on Denmark following the war and allowed the state to retain claims to land already conquered. Michael Bregnsbo, argues that Frederik VI was loyal to Napoleon, as he believed Napoleon would be the leading figure in the peace proposals if victory was achieved.<ref name=":6" /> Historian, Morten Ottosen, argues that the stubbornness of Frederik VI in remaining loyal to Napoleon was foolish and was at the heart of future failures.<ref name=":3" />

=== Social ===
The British blockade on Norway and Denmark was having consequences on the entire population.<ref name=":8">{{Cite journal|last=Jensen|first=Mette Frisk|date=2017-12-21|title=Statebuilding, Establishing Rule of Law and Fighting Corruption in Denmark, 1660–1900|journal=Oxford Scholarship Online|doi=10.1093/oso/9780198809975.003.0014}}</ref> The halting of trade meant employment opportunities stopped as goods were not being made, financial incentives were not either. In response to the bombardment of Copenhagen, King Frederik VI, prohibited all trade and communication with Great Britain in 1807.<ref name=":3" /> However, merchants and citizens understood the need for a relaxed prohibition as British goods were valued at a premium.<ref name=":3" />

Instances of corruption were widespread as the financial burden of inflation and lower wages took a toll on the population. Civil servants were increasingly being tried for corruption, most commonly, in regards to embezzlement.<ref name=":8" /> The betrayal of the King by his civil servants put pressure on the monarchy to instil public confidence in an absolutist rule in order to dispel ideas of democracy.<ref name=":8" />

== Economic resolution ==
[[File:Silver Danish Two Skilling (FindID 424442).jpg|thumb|One skilling was worth 1/96 of a rigsdaler, the Danish currency]]
[[File:Danmarks Nationalbank (old building).jpg|thumb|Danmarks Nationalbank's former building in 1818, Holmens Kanal in Copenhagen, Denmark]]

=== Rigsbanken ===
On January 5, 1813, the "''Decree on changing the currency system for the Kingdoms of Denmark and Norway and the duchies of Schleswig and Holstein”'' was declared by the Minister for Finance, Ernst Schimmelmann.<ref name=":4" /> The Decree stated:{{quote
| quote = “Since the government’s existing currency system is shaken to the core, we have decided to bring order and stability to the system by establishing a permanent and unshakeable foundation for it".<ref>{{cite web |last1=Danmarks Nationalbank |title=Danmarks Nationalbank 2018-2018|url=https://www.nationalbanken.dk/en/publications/anniversary%20publications/Documents/Nationalbanken%201818-2018_uk.pdfsc_lang=en-au |access-date=2 June 2020}}</ref>
| source =}}

The revival of the economy began with the establishment of the ''Rigsbanken,'' who were given authority to re-issue banknotes in a new currency, the rigsbankdaler''.'' A compulsory 6% priority mortgage rate was to be paid in silver as well as a 6{{fract|1|2}}% interest rate placed on all real estate.<ref name=":2" /> The government had requested the donation of silver or currency in the form of a loan to further add strength to the newly established Rigsbanken.<ref name=":3" /> This immediate cash inflow became the basis of the ''Rigsbank's'' allocation of capital. Remaining banknotes from the Napoleonic wars could be exchanged to the new currency at a ratio of 6:1, a great devaluation of finance. The objective; to cease the issuing of notes until silver and banknotes were interchangeable.<ref name=":7" />

=== Nationalbanken, 1818 ===
On 4 July 1818, King Frederik VI enacted Denmarks Nationalbank, authorising the institution to operate as the central bank.<ref name=":4" /> The Nationalbank’s constitution was signed and allowed the bank to have sole handling of the countries issuing of banknotes. It was formed to ensure independence from the government and provide assurance to the Danish people that in future the state would not over issue the currency.<ref name=":0" />

The Nationalbank halved the circulation of banknotes between 1818 and 1838, culminating in the restoration of silver and notes being of equal value in 1838.<ref name=":0" /> The success of the Nationalbank is grounded in historical power. The institution is today the central bank in Denmark and is attributed with restoring financial trust.<ref name=":0" />

== Stabilisation ==
The work of the Nationalbank and the ''Rigsbanken'' eventually stabilised the economy. During the period of bankruptcy, primary education between the ages of seven and fourteen was made compulsory, in an effort to minimise the disparity between the wealthy and peasant citizens, all of which were being effected.<ref>{{Cite journal|last1=Gutek|first1=Gerald L.|last2=Stabler|first2=Ernest|date=1988|title=Founders: Innovators in Education, 1830-1980|journal=History of Education Quarterly|volume=28|issue=2|pages=284|doi=10.2307/368500|jstor=368500|issn=0018-2680}}</ref> In 1838, the circulation of banknotes and silver had reached equality. This meant that debt repayments began and the economy began to return to the once former power it originally held. By reducing the amount of notes in circulation, the Nationalbank was able to allow the convertibility of silver into banknotes by 1845.{{fact|date=October 2020}}

==References==
{{reflist}}

== External links ==

* [https://www.nationalbanken.dk/en/publications/anniversary%20publications/Documents/Nationalbanken%201818-2018_uk.pdf History of Denmarks Nationalbank]
{{Napoleonic Wars}}{{Financial crises}}{{Subject bar|portal2=Denmark|commons=yes|wikt=yes|n=yes|n-search=Category:London|q=yes|s=yes|b=no|voy=yes|v=yes|d=yes|d-search=Q34932}}

[[Category:Financial crises|Danish state bankruptcy ]]
[[Category:Bankruptcy]]

{{Sourceattribution|Danish state bankruptcy of 1813|1}}