September 1940 r oteian Eanklln and. ]QiQV2ott5 -flnnuai /2ejaott ofi the Qatman The annual report of the German Reichsbank for organization accomplished in the preceding the year ending December 31, 1939, was submitted on April 19,1940, to the general meeting of the share- years, was rapidly and smoothly completed, holders by the President of the Bank, Dr. Walther enabling the economy to achieve the neces- Funk. The greater part of the text of the report is sary expansion of its productive capacity given in translation below:* to meet the war-time needs. Nonetheless, the hastily adopted measures of economic The influence of political events in the policy represent political and administrative German economy in 1939 has more than achievements of the greatest significance. ever determined the course of trade and The solid structure of the German money commerce. During the first eight months and credit system was not endangered at any of the past year, economic activity was char- time during the year under review, so rich in acterized by the practically unchanged con- unforeseen events. Thanks to the discipline tinuation of the constructive achievement of the German people and thanks to their con- carried out in the preceding years. The fidence in the National Socialist Government, increase in area and population, moreover, withdrawals at the banks even at the out- had disclosed new production and market- break of war, in spite of the exceptional cir- ing possibilities. Planned economic coor- cumstances, showed relatively small increase dination and sensible rationalization were and were soon succeeded by a considerable directed toward the goal of further increas- expansion of savings and other deposits. ing the productive capacity of the old Reich There was no need to consider emergency area and of bringing the newly acquired re- measures, such as raising the Reichsbank dis- gions up to the same high level of industrial count rate, closing the stock exchanges, proc- and technical efficiency. Production of goods lamation of a moratorium, or other stringent and new investments, sales, and consumption regulations. Certain legal relief measures all reached a new peak. The predominance of were provided, however, for the sections of the public authorities as the source of orders, our economy which were especially hard hit and the supremacy of capital goods produc- by the war. tion over the output of consumption goods, Currency and credit policy.—It proved even though the latter was also expanded, possible in the past year to pursue the same remained the outstanding features of the currency policy as in recent years, and even German economy. National income, savings to retain its principal outlines after the out- and capital formation, and tax receipts also break of the war. Various measures of eco- increased, thus contributing to the Reich's nomic policy, which had become effective over ability to push forward its great undertaking. a widening area since 1933, such as the super- At the outbreak of the war, all economic vision over wages and prices, control of activities were pursued even more inten- security issues and investment, regulation of sively than before, serving especially, of raw materials, foreign trade, and foreign ex- course, the defense requirements and the change, contributed to the strength of the aims of the Four Year Plan. The transition German currency at home and abroad. The to war-time activity, thanks to the work of regulation of consumption in the most im- 1 The report, available in German, contains in addition an portant departments of supply, which became introductory paragraph, a section on the Bank's activities in the issue and exchange of securities on behalf of the Government, necessary in connection with the war, took and a section relating to personnel matters. There are also tables its place as a further link in the chain of these and charts showing the operations of the Bank in detail. For earlier reports, see BULLETIN for September 1939, and for May, measures. The limitation of the general 1938, 1937, etc. For the German Reichsbank Law of 1939 and standard of living and the systematic restric- the German Credit Act of 1934, see BULLETIN for September 1939, pp. 737-742, and January 1935, pp. 30-38, respectively. tion of output of consumption goods have 942 FEDERAL RESERVE BULLETIN Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis September 1940 Foreign Banking Laws and Reports directed increasing attention to the impor- to the banks patronized by the grantees, prin- tance, from the standpoint of currency policy, cipally the German Company for Public of skimming off and capturing the surplus Works, the German Industrial Bank, the purchasing power of the German economy. Luftfahrtkontor G.m.b.H. and the Reichs- The Reichsbank has been and remains active, Kredit-Gesellschaft. Further support to in- in closest cooperation with the other inter- dustry was provided by the Decree of Septem- ested departments of the Reich, in making ber 19,1939 (Reichsgesetzblatt I, page 1851), available for the Reich's financial needs the by which it was made possible to give priority funds set free in the economic process, and to defense orders and thus to prevent liquidity in pioneering ways to protect the stability of difficulties in defense enterprises. It is a the currency while on the other hand ensur- testimonial to the efficiency of the German ing the unobstructed activity of the economic banks as a whole that the additional credit machine geared to maximum speed. needs of the economy called forth by the war Special currency measures of a technical could, in general, be covered within the frame- nature were required at the beginning of the work of the normal credit system, and that war only to the extent of a temporary sus- where, on the basis of the guarantees men- pension of the legal provisions regarding the tioned above, exceptional measures at first Rentenbank note circulation and of the cor- appeared necessary, much smaller amounts responding Section 32 of the German Reichs- than originally estimated were actually re- bank Law (Decree of September 4, 1939, quired. Reichsgesetzblatt I, page 1694), and the in- The financing methods chosen to meet the clusion of a provision in Section 1 of the Reich's requirements had to be altered in Decree regarding War Economy, which pro- the course of the past year in view of the vides penalties for unwarranted hoarding of situation created by the outbreak of war. currency. The first-named decree created the The issue of tax certificates which began in legal basis for a more extensive employment May 1939 in connection with the new finance of Rentenbank notes; this was necessary to plan and formed a temporary means of financ- supply the need for currency of smaller ing the greater part of the Reich's expendi- denominations, especially of small coin, which tures in excess of tax receipts, was brought is always intensified in war time and in this to an end by the Third Administrative case was multiplied by the recent extensions Decree of October 22, 1939 (Reichsgesetz- of territory. blatt I, p. 2067). The right originally granted All measures of credit policy had to serve to business men of making mutual payments the same purpose as the currency policy. The for goods and services in tax certificates, credit policy had to be adjusted with the up to 40 per cent of the total account, was greatest care to the Reich's financing re- abolished by the Fourth Executive Decree of quirements, which were naturally greatly March 20, 1940 (Reichsgesetzblatt I, p. 518) increased by the war. The German credit for payments due from April 1,1940. There- system was thus subjected to an extraordi- upon the tax certificates finally disappeared nary test of its efficiency. The result demon- as payment media. In accordance with the strated that the Reich could place short and expanded financing requirements, the war medium term securities on the money market finance program was further extended in the in sufficient volume to cover its requirements, field of taxation by the War Economy Decree in so far as the war finance needs could not of September 4, 1939 (Reichsgesetzblatt I, be covered by tax receipts, without resort to page 1609), which created a systematic basis excessive borrowing from the central bank. for the most important questions of financial When, as a consequence of the war, credit policy. Through the introduction of the requirements of a special nature arose in war surtax on the income tax, through in- private business, measures of credit assist- creases in various consumption taxes, and by ance were provided under guarantee in part the establishment of a war contribution from by the entire industrial community and in the provinces, communities, and other public part by the Reich, so that military supply and bodies, considerable new funds were fur- armament industries as well as enterprises nished to the Reich budget. in foreign trade and other business could ob- The Reichsbank recognized the manifest tain necessary and justifiable financial sup- duty at the outbreak of the war of placing port. The chief administrative agencies for itself at the disposal of the Reich for the these interim measures were, in addition financing of the Reich's projects, not only in- SEPTEMBER 1940 943 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis September 1940 Foreign Banking Laws and Reports directly through utilizing the latent possi- the output of consumption goods, reduction bilities of the German money market, but of inventories, and postponement of new in- also directly through contributing its own stallations not essential for war purposes, as credit resources.