What came First?

Amar Pandit , CFA , CFP

Let me ask you an interesting question.

What came first?

No, I am not asking about the chicken or the egg.

What came first amongst these 3 – Central Bank, Common Stock (equity) and Stock Exchange?

Think about it. What seems logical?

Let me give the answer.

Common Stock came first. A key aspect of this was that the purchasers were expected to hold the stock for 21 years. The stock was illiquid.

I had done a Nano The Best thing about the First Company to Issue Stock , where I wrote about this.

Then came the Stock Exchange to provide liquidity for investors.

Finally came the Central Bank. There was no concept of Central Banking till then. The First Central Bank that came into existence in 1609 was the Bank of Amsterdam. This Central Bank and later on the Bank of England were responsible for most of what we see as the Central Banking model around the world.

By the way, did you know the Superpower of the world United States of America did not have a Central Bank before 1913. There were a couple of failed attempts, but they did not have an official Central Bank till the Federal Reserve was established on December 23rd, 1913.