3. The Banknote, a Momentous Innovation in Spain

In most countries the introduction of banknotes had the same impact as any other technological innovation: an increase in labour and capital productivity. In Spain the process of introducing banknotes took more than a century. A first and rather unlucky attempt was that of 1783 by the Banco de San Carlos, one year after being established by the state. Subsequently, the Banco de San Fernando (established in 1829), was responsible for the first successful banknote issue, although these circulated only in Madrid. Between 1844 and 1847 the first permits for provincial banks of issue were authorized (namely Banco de Barcelona and Banco de Cádiz) and in 1856 permits were extended to 20 more banks around the country. A plurality of issuers lasted until 1874, when the Government––short of money––granted the monopoly to the Bank of Spain. When the new unified banknote circulated freely around the country 10 years later, one could observe that, irrespective of other variables, the provinces with greater financial development were those that had hosted local issuing banks.