Economy during dualism and the establishment of a central bank based on the principle of parity, the reform of the money system
The operation of the Austrian National Bank established in 1816 was a sore point for Hungary, which had been part of the Habsburg Empire, and it did not contribute at all to the establishment of financial and loan activities required for the development of the Hungarian economy. The First Austrian Savings Bank, which established branches in Hungary in 1827 and 1828 partially alleviated this problem. The establishment of the First National Savings Bank of Pest in 1839, initiated and organised by András Fáy, also reinforced the savings and lending practice in the form of a savings bank. The Hungarian Commercial Bank of Pest was established in 1840, which, in addition to lending, also dealt with discounting, giro and deposit transactions.
The demand for the establishment of an independent central bank also appeared in the 12 points announced during the revolution of 1848 after the reform era: Item 9 on the agenda was “Nemzeti Bank”.
After the fall of the War of Independence, it took almost twenty years to create the Austro–Hungarian Monarchy, a new basis for cooperation that was established by the Austro–Hungarian Compromise of 1867. The Kingdom of Hungary and the Austro–Hungarian Empire were united under a dualist confederation governed by a common ruler, with common foreign affairs,military policy and finances. Another 11 years later, in 1878, the Austrian National Bank was restructured to adapt to the new situation, and from then on acted as the central bank of the Monarchy, under the name of the Austro–Hungarian Bank, under equal parity and with two main institutions of the same rank.
The demolition of customs borders earlier (1851), and the political, commercial and financial settlements of the Monarchy provided a unified economic framework for dynamic development. A significant amount of foreign capital flowed into the country as a result of the state’s active economic policy and industrial development laws, supporting the “start-up fever” that occurred in two large waves. Railways, shipping, communications, coal and iron mining, sugar production, the food industry, trade, and commerce all flourished, and urbanisation was also rapidly advancing. The operation of mortgage banks put an end to the lack of loans that restricted the development of agriculture. Significant technical innovation, automation, the spread of leasing and the development of transport, combined with domestic and international sales opportunities created a huge market opportunity for agriculture.
The Hungarian national economy underwent a radical transformation between 1867 and 1913 and became a capitalist economy with a well-developed infrastructure, mainly railroads, and modernisation in all economic sectors and people’s lifestyles. In the meantime, national income grew almost fivefold. By the beginning of the 20th century, five large banks (Hungarian General Credit Bank, Anglo-Hungarian Bank, Franco-Hungarian Bank, Hungarian Mortgage Credit Bank, Hungarian Discount and Currency Exchange Bank) and the smaller credit institutions clustered around them owned almost 60 % of the banking capital and had significant interests in leading economic sectors.
As the central bank of the Monarchy, the Austro–Hungarian Bank was responsible for the stability of the currency, which was a silver-based forint until 1892, and its patent was renewed every ten years. Gold-based korona was introduced in 1892 at the suggestion of Sándor Wekerle and with the professional assistance of Sándor Popovics, who will become the first president of the Magyar Nemzeti Bank in 1924, and thereby the Monarchy became a member of the gold standard system. 3,280 korona was covered by 1 kilogram of pure gold (996/1000), so 1 korona banknote could be exchanged for 0.304878 grams of gold. However, forint remained a lawful payment instrument, and 1 forint was equal to 2 koronas based on the official exchange rate. However, this duality ceased as of 1900, the silver-based forint lost its status as an official means of payment. The gold-based system became the only currency used by theMonarchy.
Source: Bolond Istók, Borsszem Jankó