The bank then found itself with a serious liquidity problem because the desired coins had been issued as loans. Faced with this situation, Johan Palmstruch had an idea – an idea with consequences. Those who asked for their coins back received paper money instead. This paper money was backed by the copper coins, which had not disappeared but had simply been lent out.
The people and the state accepted the paper money; the crisis was averted. At the same time, Stockholm Banco could now make loans in the form of paper money. It then did that, but somewhat too generously: it produced more paper money than were backed by the coins. The people lost trust in the value of the paper money and Sweden experienced inflation.